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CA Intermediate · Auditing and Ethics · Audit Report

Auditor of Ganga Steels Ltd, a listed company, has concluded that a material uncertainty exists regarding going concern. Management has adequately disclosed the uncertainty in the notes to the financial statements. The auditor has otherwise obtained sufficient appropriate evidence. Which is the correct reporting under SA 570 and SA 701?

The auditor should give an unmodified opinion with a separate section headed Material Uncertainty Related to Going Concern that refers to the disclosure note. SA 570 reserves modified opinions for inadequate disclosure, and this matter is not described under Key Audit Matters.

  1. AExpress an adverse opinion because going concern is doubtful
  2. BExpress a qualified opinion because of the uncertainty
  3. CExpress an unmodified opinion and include a separate section headed 'Material Uncertainty Related to Going Concern' drawing attention to the disclosureCorrect
  4. DReport the matter only under Key Audit Matters, with no separate section

Explanation

Where adequate disclosure of a material uncertainty is made, SA 570 requires an unmodified opinion with a separate section titled 'Material Uncertainty Related to Going Concern'. Such matters are by nature key audit matters but are not described in the KAM section; they go in the separate section. Adverse or qualified opinions apply only if disclosure is inadequate.

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