Skip to content

CFA Level I · CFA Level I Exam · Introduction to Financial Statement Analysis

An analyst is evaluating a company whose auditor's report includes a paragraph on material uncertainty related to going concern, while the opinion is otherwise unqualified. Which conclusion is most appropriate?

The most appropriate conclusion is that the statements are fairly presented but the analyst should closely assess whether the company can continue operating. A going concern uncertainty paragraph does not make the opinion adverse, yet it signals risk that bears on solvency, liquidity and valuation assumptions.

  1. AThe statements are materially misstated, so the opinion should be treated as adverse.
  2. BThe statements are fairly presented, but the analyst should assess the company's ability to continue operating.Correct
  3. CThe statements are reliable and the paragraph can be ignored because the opinion is unqualified.

Explanation

A going concern uncertainty paragraph warns that events may cast significant doubt on the entity continuing, even though the statements are fairly presented. It is not an adverse opinion, and ignoring it would be inappropriate because it affects liquidity, solvency and valuation assumptions.

Did you get it right without looking?

One question tells you little. A timed set on Introduction to Financial Statement Analysis shows your real accuracy, how long you take and where you lose marks.

Practise Introduction to Financial Statement AnalysisFree diagnostic mock

More Introduction to Financial Statement Analysis questions