Consider the following situations that might arise in the audit of the financial
ID: 2499550 • Letter: C
Question
Consider the following situations that might arise in the audit of the financial statements of a nonpublic company. Indicate the type of opinion(s) that would be issued and describe any other modification to the standard audit report that would result. Unless indicated otherwise, assume that material amounts are involved. When more than one opinion might be issued, explain when each is appropriate.
Types of Opinion
Unmodified – standard
Unmodified with an emphasis of matter paragraph
Qualified
Adverse
Disclaimer
Unmodified with an emphasis of matter paragraph or disclaimer
Qualified or adverse
Qualified or disclaimer
Adverse or disclaimer
a. In auditing a client, an auditor has determined that substantial doubt exists about an entity's ability to continue as a going concern.
Types of Opinion
Unmodified – standard
Unmodified with an emphasis of matter paragraph
Qualified
Adverse
Disclaimer
Unmodified with an emphasis of matter paragraph or disclaimer
Qualified or adverse
Qualified or disclaimer
Adverse or disclaimer
a. In auditing a client, an auditor has determined that substantial doubt exists about an entity's ability to continue as a going concern.
Explanation / Answer
Whether substantial doubt remains or is alleviated is a judgment call made by the
auditor, and there is no requirement to document management's opinion on the matter under U.S. auditing
standards. Under International Standards on Auditing, management must assess the entity's ability to
continue as a going concern and the auditor must evaluate this assessment and document the evaluation in
the audit workpapers.
After the auditor has evaluated management's plans, he concludes whether he has substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time. If the auditor concludes there is substantial doubt, he should (1) consider the adequacy of disclosure about the entity's possible inability to continue as a going concern for a reasonable period of time, and (2) include an explanatory paragraph (following the opinion paragraph) in his audit report to reflect his conclusion. If the auditor concludes that substantial doubt does not exist, he should consider the need for disclosure.