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    Audit Opinion and Going Concern Notes by Ajay

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    shresthaluca8

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    Audit Opinion and Going Concern Notes by Ajay

    Uploaded by

    shresthaluca8
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    AUDIT OPINION AND GOING CONCERN NOTES BY AJAY

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    1 views11 pages

    Audit Opinion and Going Concern Notes by Ajay

    Uploaded by

    shresthaluca8

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    AUDIT OPINION &

    GOING CONCERN
    NOTES
    BY THEACCASIST
    AUDIT OPINION
    THERE ARE TWO TYPES OF AUDIT
    OPINION
    1) UNMODIFIED OPINION
    Here the financial statements give true
    and fair view and are free from material
    misstatements
    Also, the auditor has obtained
    sufficient appropriate evidence for
    related issues.
    2) MODIFIED OPINION
    Here financial statements do not give
    true and fair view, are materially
    misstated.
    Also, the auditor has not obtained
    sufficient appropriate evidence for
    related issues.

    PERVASIVE A MISSTATEMENT IS
    PERVASIVE, IF IT EFFECTS ARE SPREAD
    THROUGHOUT MANY ITEMS OF FINANCIAL
    STATEMENTS, OR IT REPRESENTS MAJOR
    PROPORTION OF FINANCIAL
    STATEMENTS.
    QUALIFIED OPINION
    This is issued when there is misstatement
    or lack of evidence, it is material but not
    pervasive a qualified opinion is issued
    The opinion will state that “EXCEPT FOR
    THIS ISSUE”, financial statements give
    true and fair view.
    A basis of qualified opinion will be added
    in audit report, which will explain the
    effect of misstatement on financial
    statements.
    ADVERSE OPINION
    This opinion is issued when misstatement
    is material and pervasive.
    Issue this if:
    1) Wrong basis of preparing Financial
    Statements
    2) If misstatement represents major
    proportion of financial statements
    DISCLAIMER OF OPINION
    This is issued when the auditor does not
    obtain sufficient appropriate evidence
    regarding the issue and effect of that is
    pervasive. The auditor does not express
    opinion on financial statements.

    GOING CONCERN.
    Going concern is assumption that the
    company will be able to continue the
    business for foreseeable future.
    The period is minimum 12 months from the
    year end
    When company is not a going concern, the
    financial statements are prepared using
    Break-up Basis
    Responsibility of directors
    It is director’s responsibility to assess the
    if company is going concern or not
    Directors should prepare forecasts to
    assess if company is likely to continue
    business for next 12 months
    If there is material uncertainty over the
    company, the directors should make the
    disclosure for this in the financial
    statements
    Responsibilities of the Auditor
    Obtain evidence regarding
    appropriateness of directors' basis of
    going concern in preparation of financial
    statements
    Conclude whether material uncertainty
    exists or not
    INDICATIONS OF GOING CONCERN
    1) Unplanned sales of non-current
    assets
    2) Falling liquidity ratios
    3) Negative cashflow due to
    overtrading
    4) Net current liabilities, inability to
    pay debt as they fall due
    5) Major technological changes,
    company not able to cope with
    6) Losing key staff, leading to inability
    to trade

    SUBSTANTIVE PROCEDURES FOR


    GOING CONCERN
    1) Read minutes of the meeting to assess if
    there any further financial difficulties
    2) Review correspondence with bank to
    assess if bank has any intention for a Bank
    loan recall
    3) Review Bank agreements to determine
    whether any covenants have been
    breached
    4) Review post year end management
    accounts to assess if these are in line with
    cashflow forecast
    5) Consider the going concern basis is
    appropriate for the preparation of financial
    statements
    6) Obtain written representation from
    management, confirming their view that
    the company is going concern and all
    relevant disclosures have been made.

    Audit opinion in case of matters related to


    going concern
    Case 1) Company has no material
    uncertainty – unmodified opinion will be
    issued
    Case 2) Company has material uncertainty
    and proper disclosures are made-
    unmodified opinion and include (Material
    uncertainty paragraph in audit report)

    Case 3) Not disclosed properly – issue an


    adverse opinion and include basis for
    adverse opinion paragraph in report
    Case 4) Company is not going concern,
    used breakup basis to prepare FS and
    proper disclosures- issue an unmodified
    opinion and include emphasis of matter
    paragraph in audit report.
    Case 5) Company is not a going concern
    and prepared FS on wrong basis – issue an
    adverse opinion and include basis for
    adverse opinion paragraph in audit report

    THANK YOU FOR READING!!!


    ALL THE BEST
    BY AJAY SHARMA.
    ~BYTHEACCASIST AJAY &
    SANDARABH

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