Page 152 - CA Final PARAM Digital Book.

➢ Therefore, considering the above factors it is clear that the going concern basis is inappropriate for
the company.
➢ Further, such circumstances are not reflected in the financial statements of the company. As such, the
statutory auditor of Sun Moon Ltd. should:
• Express an adverse opinion in accordance with SA 705 (Revised) and
In the Basis of Opinion paragraph of the auditor’s report, the statutory auditor should state that a material
uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going
concern and that the financial statements do not adequately disclose this matter.
Author’s Note
In SA 570 there are questions which are not specific part of SA 570 they are case studies with “bad business
position”

ICAI gave following answers which is a mixed bag where explain below points in short

TRADITIONAL APPROACH BY ICAI
1. Going concern meaning and disclosure in notes to accounts
2. Responsibility of management
3. Auditor Responsibility
i. look for events & condition which create significant doubt
ii. perform additional procedure
iii. conclusion about material uncertainty & disclosure
iv. conclusion about going concern & reporting
v. finally discuss case give conclusion about reporting.

NEW APPROACH BY ICAI
In QNO 90.050 again we have a bad business story it was given in M19M & N19R where they explained about

1. Events or condition creating significant doubt
2. Additional procedures
3. MU and its disclosure
4. Case discussion
5. Conclusion
CONCLUSION
So we have traditional approach and new approach of answering bad business questions students can
follow any approach both will give marks traditional approach is popular as of now and students can use
it

QNO Dealing with Material Uncertainty Old Course – (N18E, SM21, N21M,M23M)
94.010 TITANIUM CNO--SA570.060 New Course – (SM23)
M/s Airlift Ltd., carrying on the business of Passenger Transportation by air is running into continuous
financial losses as well as reduction in Sales due to stiff competition and frequent break down of its
own aircrafts. The Financial Statements for the Year ended on 31/03/2018 are to be now finalized. The
Management is quite uncertain as to its ability to continue in near future and has informed the Auditors
that having seized of this matter, it had constituted a committee to study this aspect and to give
suggestions for recovery, if any, from this bad, situation. Till the study is completed, according to the
Management, the issue involves uncertainty as to its ability to continue its business and it informs
the Auditor that the fact of uncertainty clamping on the “Going Concern” would suitably be disclosed
in notes to accounts. State the reporting requirement if any, in the Independent Auditor’s Report in
respect of this matter.
OR
TUV Ltd. is a company engaged in the business of manufacture of spare parts. Saroj & Associates are the
statutory auditors of the company for the FY 2020-21. During the course of audit, CA Saroj noticed that
the company had a major customer, namely, Korean Mart from South Korea. Owing to an outbreak of war
and subsequent destruction leading to government ban on import and export in South Korea, the demand
from Korean Mart for the products of TUV Ltd. ended for an unforeseeable time period. When discussed
with the management, CA Saroj was told that the company is in the process of identifying new customers
for their products. CA Saroj understands that though the use of going concern assumption is appropriate
but a material uncertainty exists with respect to the identification of new customers. This fact is duly
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