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CA Intermediate · Auditing and Ethics · Audit Report

Ganga Steels Ltd, a listed company, has a going concern uncertainty. Management has made adequate disclosure of the material uncertainty in the notes. The auditor has also determined that a particular inventory valuation matter is a Key Audit Matter. Which presentation in the auditor's report is correct under SA 570 (Revised) and SA 701?

The going concern uncertainty goes in a separate section headed Material Uncertainty Related to Going Concern, not under Key Audit Matters, while the inventory valuation matter is reported under Key Audit Matters. The opinion stays unmodified because the disclosure is adequate. Omission would breach SA 570 (Revised).

  1. AReport the going concern matter under a separate heading 'Material Uncertainty Related to Going Concern', and exclude it from Key Audit Matters; give the inventory matter under Key Audit MattersCorrect
  2. BReport the going concern matter under Key Audit Matters, along with the inventory matter
  3. CReport the going concern matter in an Emphasis of Matter paragraph and qualify the opinion
  4. DOmit the going concern matter from the report since it is disclosed in the notes

Explanation

Where adequate disclosure of a material uncertainty is made, the auditor expresses an unmodified opinion and includes a separate section 'Material Uncertainty Related to Going Concern'. Such a matter is by nature a key audit matter but is not described under KAMs; the report refers to the separate section. Other KAMs, such as inventory, are reported under KAMs. Qualification is needed only when disclosure is inadequate.

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