ACCA Strategic Professional · Advanced Audit and Assurance (International) · Completion and final review
Harlow Co's audit is nearly complete. Management discloses material uncertainties about going concern, namely a loan covenant breach and reliance on a refinancing not yet agreed. The financial statements are prepared on a going concern basis, and the auditor judges that the disclosures are adequate. What opinion and report treatment does ISA 570 (Revised) require?
The auditor issues an unmodified opinion and includes a separate section headed Material Uncertainty Related to Going Concern, referring to the note. The opinion is not modified because the going concern basis is appropriate and the disclosure is adequate.
- AAn unmodified opinion with a separate section headed 'Material Uncertainty Related to Going Concern'Correct
- BA qualified opinion because a material uncertainty exists
- CAn unmodified opinion with an Emphasis of Matter paragraph under the Key Audit Matters section
- DAn adverse opinion because the entity may not continue in operation
Explanation
Where the use of the going concern basis is appropriate and the disclosures are adequate, the opinion is unmodified. ISA 570 requires a separate section headed 'Material Uncertainty Related to Going Concern', which draws attention to the note. It is not an emphasis of matter paragraph or a modification. A qualified or adverse opinion would only arise from inadequate disclosure or an inappropriate basis.
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