Page 148 - CA Final PARAM Digital Book.

Requesting written representations from management and, where appropriate, those
charged with governance, regarding their plans for future actions and the feasibility of these
plans.

➢ Auditor Conclusions about Material Uncertainty and Going Concern
The auditor shall evaluate whether sufficient appropriate audit evidence has been obtained regarding,
and shall conclude on, the appropriateness of management’s use of the going concern basis of
accounting in the preparation of the financial statements.

➢ Disclosure –
Adequacy of Disclosures When Events or Conditions Have Been Identified but No Material
Uncertainty Exists.
If events or conditions have been identified that may cast significant doubt on the entity’s ability to
continue as a going concern but, based on the audit evidence obtained the auditor concludes that no
material uncertainty exists, the auditor shall evaluate whether, in view of the requirements of the
applicable financial reporting framework, the financial statements provide adequate disclosures about
these events or conditions.

Part III—Case Discussion
➢ In the instant case, the approval of the resolution plan is a significant mitigating factor to
counter the going concern issues of AQP Ltd. PQR Ltd has submitted a detailed plan and
commitments that has been given as part of the resolution plan which includes clearance of all
outstanding debts which were leading to negative cash flows.

Part IV—Conclusion
➢ Therefore, it can be said that the company that the events and conditions are mitigated
effectively and there is no material uncertainty in relation to the ability of the company to
continue as a going concern.
Author’s Note
• Factors which compensate going concern risks, reduce it and help going concern assumption, it is
called mitigating factor
For Example - If there is fund shortages and holding company has promised to send funds it is
mitigating factor

• How did the auditor arrive at the conclusion that material uncertainty related to going concern
doesn’t exist? The resolution plan is only a mitigating factor and it does not signify nonexistence of
material uncertainty related to going concern?
o Material uncertainty means uncertain future events affecting going concern having such
likelihood and magnitude that disclosure should be made.
o Mitigating factors are one which reduces material uncertainty, so sometimes mitigating factors
may nullify material uncertainty.
o There can be circumstances where material uncertainty exists but still chances / probability of
going concern in next 12 months are more and going concern is valid.
o In this case there were matters leading to material uncertainty, but they got compensated by
mitigating factors, so resultant there is no material uncertainty.

QNO Reporting when Going Concern is appropriate But MU Exists New Course – (SM23)
90.090 TITANIUM CNO-- SA570.060
Sun Moon Ltd. is a power generating company which uses coal as raw material for its power generating
plant. The company has been allotted coal blocks in the state of Jharkhand and Odisha. During the FY
2022-23, a scam regarding allotment of coal blocks was unveiled leading to a ban on the allotment of coal
blocks to various companies including Sun Moon Ltd. This happened in the month of December 2023 and
as such entire power generation process of Sun Moon Ltd, came to a halt in that month. As a result of such
ban, and the resultant stoppage of the production process, many key managerial personnel of the
company left the company. There were delays in the of payment of wages and salaries and the banks from
whom the company had taken funds for project financing also decided not to extend further finance or to
fund further working capital requirements of the company.

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