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reflected in the financial statements of TUV Ltd. for the FY 2020-21. How should CA Saroj deal with this
matter in the auditor’s report for the FY 2020-21?
Answer Part I -- Relevant Standards & Laws
➢ SA 570 “Going Concern”

Part II -- Requirements of Relevant Standards & Laws
➢ Reporting requirements in case of Uncertainty clamping on the Going Concern:
• Situation when going concern is appropriate but MU exits
As per SA 570 “Going Concern”, if the auditor concludes that management’s use of the
going concern basis of accounting is appropriate in the circumstances but a material
uncertainty exists, the auditor shall determine whether the financial statements:
• Disclosure of Principal Events & Conditions in financial statements
Adequately disclose the principal events or conditions that may cast significant
doubt on the entity’s ability to continue as a going concern and management’s
plans to deal with these events or conditions; and

• Warn may be unable to realise assets & pay liabilities in notes to accounts
Disclose clearly that there is a material uncertainty related to events or conditions
that may cast significant doubt on the entity’s ability to continue as a going
concern and, therefore, that it may be unable to realize its assets and discharge
its liabilities in the normal course of business.

• If adequate disclosure as given above – unmodified opinion & Separate section with
heading “MU related to Going Concern” in Audit Report
If adequate disclosure about the material uncertainty is made in the financial
statements, the auditor shall express an unmodified opinion and the auditor’s
report shall include a separate section under the heading “Material Uncertainty
Related to Going Concern” to:
o Draw attention to the note in the financial statements that discloses the
matters set out above; and
o State that these events or conditions indicate that a material uncertainty
exists that may cast significant doubt on the entity’s ability to continue
as a going concern and that the auditor’s opinion is not modified in
respect of the matter.
Part III – Case Discussion
➢ In the instant case, M/s Aircraft Ltd. is running into continuous financial losses as well as reduction
in sales due to stiff competition and frequent break down of its own aircrafts and management of
Aircraft Ltd. is uncertain as of its ability to continue in near future. Therefore, a committee has
been constituted to study this aspect and till the time study is completed management
accordingly decided to suitable disclose this aspect in notes to accounts.
Part IV -- Conclusion
➢ Therefore, the auditor should
• Express an unmodified opinion and
• Include in his audit report, a separate section under the heading “Material
Uncertainty Related to Going Concern” to:
• Draw attention to the note in the financial statements that discloses the matters and
• State that these events or conditions indicate that a material uncertainty exists that
may cast significant doubt on the entity’s ability to continue as a going concern and that
the auditor’s opinion is not modified in respect of the matter
Author’s Note
• In this question nowhere it is mentioned that mitigating factor exists. It is only written that
committee has been constituted to give suggestion for recovery, but answer has been given on the
basis that going concern is appropriate and material uncertainty exists. Why Isn’t going concern
inappropriate?
o Material uncertainty means uncertain future events affecting going concern having such
likelihood and magnitude that disclosure should be made.

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