ACCA Strategic Professional · Advanced Audit and Assurance (International) · Subsequent events and going concern
Tarn Engineering has net current liabilities, and management has disclosed a material uncertainty related to going concern. It states that the company depends on continued support from its parent, which has provided a letter of support. The auditor concludes that the use of the going concern basis is appropriate and that the disclosure in the notes is adequate. The auditor has obtained sufficient appropriate evidence on the parent's ability to provide support. What is the appropriate effect on the auditor's report?
The auditor should give an unmodified opinion and include a separate section headed Material Uncertainty Related to Going Concern that refers to the note. The basis is appropriate and disclosure adequate, so no modification is needed, but ISA 570 (Revised) requires the uncertainty to be highlighted.
- AUnmodified opinion, with a separate section headed 'Material Uncertainty Related to Going Concern' referring to the noteCorrect
- BQualified opinion, because a material uncertainty exists
- CAdverse opinion, because the entity may not continue as a going concern
- DUnmodified opinion with no reference, because the uncertainty is disclosed in the notes
Explanation
Where the going concern basis is appropriate, a material uncertainty exists and disclosure is adequate, ISA 570 (Revised) requires an unmodified opinion with a separate section headed 'Material Uncertainty Related to Going Concern' that draws attention to the note. A modified opinion is needed only if disclosure is inadequate (qualified or adverse) or the going concern basis is inappropriate (adverse). Making no reference to the matter would breach the standard.
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