Page 170 - CA Final PARAM Digital Book.

audit matter. Therefore, the auditor is required to Communicate the Key Audit Matters in
accordance with SA 570 in above stated manner. Simple reference as to a possible
cessation of business and making of adjustments, if any, be made at the time of cessation
only by the auditor in his report is not sufficient.

Author’s Note:

I am personally not happy with the answer.

Scenario 1
If going concern is invalid and company doesn’t shift to liquidation basis then adverse opinion should be
given.

Scenario 2
If there is material uncertainty over going concern then separate section “Material Uncertainty Over
Going Concern” should be introduced and KAM section should simply have reference to MUGC
section.

This case fits in Scenario 1 but ICAI has taken it to scenario 2 and further treatment given to include it in
KAM matter is also not appropriate.

QNO Adverse Opinion & KAM Old Course- (N22M)
112.350 TITANIUM CNO -- Unique
While auditing the complete set of consolidated financial statements of Moksh Ltd., a listed company,
using a fair presentation framework, XYZ & Co., a Chartered Accountant firm, discovered that the
consolidated financial statements are materially misstated due to the non-consolidation of one of the
subsidiary. The material misstatement is deemed to be pervasive to the consolidated financial statements.
The effects of the misstatement on the consolidated financial statements could not be determined
because it was not practicable to do so. Thus, XYZ & Co. decided to provide an adverse opinion for the
same and further determined that, there are no key audit matters other than the matter to be described
in the Basis for Adverse Opinion section. Comment whether XYZ & Co. needs to report under SA 701
‘Communicating Key Audit Matters in the Independent Auditor’s Report’?"
Answer SA 700 establishes requirements and provides guidance on forming an opinion on the financial statements.
Communicating key audit matters is not a substitute for disclosures in the financial statements that the

applicable financial reporting framework requires management to make, or that are otherwise necessary
to achieve fair presentation. SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”,
addresses circumstances in which the auditor concludes that there is a material misstatement relating to
the appropriateness or adequacy of disclosures in the financial statements.

When the auditor expresses a qualified or adverse opinion in accordance with SA 705, presenting the
description of a matter giving rise to a modified opinion in the Basis for Qualified (Adverse) Opinion section
helps to promote intended users’ understanding and to identify such circumstances when they occur.
Separating the communication of this matter from other key audit matters described in the Key Audit
Matters section, therefore, gives it the appropriate prominence in the auditor’s report.

Further, when the auditor expresses a qualified or adverse opinion, communicating other key audit matters
would still be relevant to enhancing intended users’ understanding of the audit, and therefore the
requirements to determine key audit matters apply. However, as an adverse opinion is expressed in
circumstances when the auditor has concluded that misstatements, individually or in the aggregate, are
both material and pervasive to the financial statements depending on the significance of the matter(s)
giving rise to an adverse opinion, the auditor may determine that no other matters are key audit matters.

In the given situation Moksh Ltd., a listed company, has not consolidated one of its subsidiary. Further,
Consolidated Financial Statements of Moksh Ltd. Are materially misstated due to such non-consolidation.
The material misstatement is also deemed to be material and pervasive and effect of the failure to
consolidate have not been determined. In the given situation it is appropriate to give Adverse Opinion by
XYZ & Co., a Chartered Accountant Firm.

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