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

Orion Co's directors have prepared financial statements on a going concern basis, but the auditor concludes that the entity will be unable to continue as a going concern and that the going concern basis is inappropriate. The effect is material and pervasive. Which opinion should the auditor express?

The auditor should express an adverse opinion. The going concern basis is inappropriate and the misstatement is material and pervasive, so ISA 570 (Revised) requires an adverse opinion, not a qualification, a material uncertainty section or a disclaimer.

  1. AQualified opinion with an Emphasis of Matter paragraph
  2. BUnmodified opinion with a Material Uncertainty section
  3. CAdverse opinionCorrect
  4. DDisclaimer of opinion

Explanation

ISA 570 (Revised) requires an adverse opinion when financial statements are prepared on a going concern basis but, in the auditor's judgement, that basis is inappropriate. This is a material misstatement that is pervasive. A disclaimer applies to inability to obtain evidence, which is not the case here.

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