CA Intermediate · Auditing and Ethics · Audit Report
The auditor of Sahyadri Engineering Ltd, a company with a going concern issue, finds that management has used the going concern basis, and a material uncertainty exists about its ability to continue. Adequate disclosure of the uncertainty is made in the notes. Which is the correct audit report response under SA 570?
The auditor gives an unmodified opinion and adds a separate section headed 'Material Uncertainty Related to Going Concern'. Because the basis is appropriate and the uncertainty is adequately disclosed, SA 570 does not require qualification, adverse opinion or disclaimer.
- AQualified opinion because of the uncertainty
- BUnmodified opinion with a separate section headed 'Material Uncertainty Related to Going Concern'Correct
- CAdverse opinion as the going concern basis is inappropriate
- DDisclaimer of opinion since the future is uncertain
Explanation
When use of the going concern basis is appropriate but a material uncertainty exists and is adequately disclosed, the opinion is unmodified and a separate section titled 'Material Uncertainty Related to Going Concern' is included. Qualified or adverse opinions apply when disclosure is inadequate or the basis is inappropriate. A disclaimer is not suitable as sufficient evidence exists.
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