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

Zephyr Ltd's directors have prepared financial statements on the going concern basis. The auditor concludes that the going concern basis is appropriate, but a material uncertainty exists, and that the financial statement disclosure of it is adequate. Which audit report treatment is required under ISA 570 (Revised) and ISA 706?

The auditor issues an unmodified opinion and includes a separate section headed 'Material Uncertainty Related to Going Concern'. The disclosure is adequate, so no modification is needed, but the uncertainty must be drawn to users' attention in its own section rather than within key audit matters.

  1. AAn unmodified opinion with a separate section headed 'Material Uncertainty Related to Going Concern'Correct
  2. BA qualified opinion with an 'except for' paragraph
  3. CAn unmodified opinion with the matter reported only as a key audit matter
  4. DAn adverse opinion because the entity may not continue in operation

Explanation

Where a material uncertainty exists and is adequately disclosed, the opinion is unmodified. The report must include a separate section under the heading 'Material Uncertainty Related to Going Concern'. A KAM-only treatment is wrong because such matters are, by their nature, not reported within KAMs.

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