CA Intermediate · Auditing and Ethics · Audit Report
CA Vikram is the auditor of Bharat Steels Ltd. While finalising the report he notes that the company has a going concern material uncertainty: it has defaulted on loan repayments and its net worth is eroded. The financial statements are prepared on a going concern basis and the company has adequately disclosed the material uncertainty in Note 5. Which is the correct reporting under SA 570 (Revised)?
The auditor should give an unmodified opinion with a separate section titled 'Material Uncertainty Related to Going Concern' referring to Note 5. SA 570 (Revised) requires modification only where the disclosure is inadequate or the going concern basis is inappropriate; neither applies here.
- AUnmodified opinion, with a separate section headed 'Material Uncertainty Related to Going Concern' drawing attention to Note 5Correct
- BQualified opinion, since going concern doubts always require modification
- CAdverse opinion, because the going concern basis is inappropriate
- DUnmodified opinion, with the matter reported as a Key Audit Matter only
Explanation
When use of the going concern basis is appropriate but a material uncertainty exists and is adequately disclosed, SA 570 requires an unmodified opinion with a separate section titled 'Material Uncertainty Related to Going Concern'. Adverse opinion arises only if the basis is inappropriate; qualification or adverse opinion also applies if disclosure is inadequate. Such matters are not reported as KAMs.
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