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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Subsequent events and going concern

Kestrel plc's directors have prepared financial statements on a going concern basis. The auditor concludes that a material uncertainty exists, but the notes make no mention of it despite the auditor's request that they do so. The auditor considers the effect material but not pervasive. What is the appropriate opinion?

A qualified 'except for' opinion is appropriate. Management has not adequately disclosed a material uncertainty, which is a material misstatement. Because it is not pervasive, ISA 570 and ISA 705 require qualification with a basis paragraph, not an Emphasis of Matter or an adverse opinion.

  1. AUnmodified opinion with an Emphasis of Matter paragraph describing the uncertainty
  2. BQualified opinion ('except for'), explaining the inadequate disclosure in the Basis for Qualified Opinion sectionCorrect
  3. CAdverse opinion, because going concern issues are always pervasive
  4. DDisclaimer of opinion due to inability to obtain sufficient evidence

Explanation

Under ISA 570 (Revised), if adequate disclosure of a material uncertainty is not made, the auditor expresses a qualified or adverse opinion as appropriate under ISA 705. Here the effect is material but not pervasive, so a qualified opinion applies. An Emphasis of Matter cannot substitute for the missing disclosure by management.

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