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ACCA Strategic Professional · Advanced Audit and Assurance (International) · Auditor's reports

Orlo plc is listed. Its directors have decided to liquidate the company and have prepared the financial statements on a liquidation basis, which is appropriate in the circumstances and properly disclosed. The auditor has no other concerns. Which statement about the audit report is correct?

The auditor issues an unmodified opinion and may add an emphasis of matter paragraph drawing attention to the liquidation basis. The alternative basis is acceptable and properly disclosed, so no modification is needed. An adverse opinion would apply only if the going concern basis were used inappropriately.

  1. AThe auditor must give an adverse opinion because the going concern basis has been abandoned
  2. BThe auditor issues an unmodified opinion and may include an emphasis of matter paragraph referring to the basis of preparationCorrect
  3. CThe auditor must include a material uncertainty related to going concern section
  4. DThe auditor must disclaim an opinion because the future is unknowable

Explanation

When the going concern basis is inappropriate and management uses an acceptable alternative basis that is adequately disclosed, the auditor may issue an unmodified opinion. The auditor may consider an emphasis of matter paragraph to draw attention to the alternative basis. The material uncertainty section applies only where the going concern basis is still used. An adverse opinion applies when the going concern basis is used inappropriately.

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