ACCA Strategic Professional · Advanced Audit and Assurance (International) · Subsequent events and going concern
Brandt Co's financial statements are prepared on the going concern basis. The audit team concludes that the directors intend to cease trading within three months and have no realistic alternative. No disclosure of this is made, and the financial statements do not use a liquidation basis. What is the appropriate audit opinion?
The auditor should give an adverse opinion. The directors intend to cease trading with no realistic alternative, so the going concern basis is inappropriate, and the misstatement is pervasive. A material uncertainty section only applies when the basis remains appropriate, and no evidence limitation exists.
- AQualified opinion, except for the lack of disclosure
- BUnmodified opinion with a material uncertainty section
- CAdverse opinion, because the going concern basis is inappropriateCorrect
- DDisclaimer of opinion because of the limitation on scope
Explanation
ISA 570 requires an adverse opinion when financial statements have been prepared on the going concern basis but, in the auditor's judgement, that basis is inappropriate. Intention to cease trading with no realistic alternative makes the basis inappropriate, and the effect is pervasive. A material uncertainty section is for cases where the basis is appropriate, and there is no scope limitation as evidence is available.
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