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CA Intermediate · Auditing and Ethics · Audit Report

CA Meera is auditing Sahyadri Pharma Ltd. Management has used the going concern basis. Audit evidence shows a material uncertainty exists about going concern, and the financial statements adequately disclose it. What is the correct reporting response under SA 570 (Revised)?

The auditor should give an unmodified opinion and add a separate section titled 'Material Uncertainty Related to Going Concern'. Because the uncertainty is adequately disclosed, SA 570 does not require modification; qualified or adverse opinions arise only when disclosure is inadequate or the going concern basis is inappropriate.

  1. AExpress a qualified opinion because of the uncertainty
  2. BExpress an unmodified opinion and include a separate section headed 'Material Uncertainty Related to Going Concern'Correct
  3. CExpress an adverse opinion since the entity may not continue
  4. DDisclaim an opinion because future events cannot be audited

Explanation

When a material uncertainty exists and is adequately disclosed, SA 570 requires an unmodified opinion with a separate section 'Material Uncertainty Related to Going Concern' drawing attention to the note. A qualified or adverse opinion applies only if disclosure is inadequate or the going concern basis is inappropriate. Disclaimer is not warranted as sufficient evidence is available.

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