Page 224 - CA Inter Audit PARAM

CA Ravi Taori

QNO-- Case Study Material Uncertainty But Going Concern Appropriate New Course – (M24M)
570.11 Bhaskar CNO – SA570.090

CA B is statutory auditor of Boom Payments Bank for year 2023-24. During the year, banking regulator has
imposed restrictions on Bank from accepting new deposits due to non-compliance in conducting KYC in large
number of accounts and violation of rules aimed at preventing money laundering. There is material
uncertainty regarding probable outcome of such restrictions on ability of Bank to continue as going concern.

However, for year 2023-24, auditor has concluded that use of going concern basis of accounting is
appropriate. The financial statements of Bank do not make adequate disclosure of material uncertainty due
to above events in financial statements. What are implications for auditor’s report for year 2023-24 in view
of above?
Answer As described in the situation given in the question, banking regulator has imposed restrictions due to non-
compliance with regulatory requirements and there is material uncertainty of such events or conditions which
may cast a significant doubt on ability of Bank to continue as going concern. However, the financial statements
of Bank do not make adequate disclosure of material uncertainty due to above events in financial statements.

If adequate disclosure about the material uncertainty is not made in the financial statements, the auditor
shall:
(i) Express a qualified opinion or adverse opinion, as appropriate, in accordance with SA 705.

(ii) In the Basis for Qualified (Adverse) Opinion section of the auditor’s report, 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.

QNO— Management Not Willing to Make Going Concern Assessment New Course – (SM25)
570.12 Bhaskar CNO - SA570.090
The auditor of a company is having concerns about following of going concern basis of accounting
followed by management for preparation of financial statements. It asks the management to justify
preparation of financial statements. However, management is not willing to make its assessment and
share with auditor. What are implications for auditor’s report in such a scenario?
Answer Management unwilling to make or extend its assessment.
If management is unwilling to make or extend its assessment when requested to do so by the auditor,
the auditor shall consider the implications for the auditor’s report. In such a situation, a qualified
opinion or a disclaimer of opinion in the auditor’s report may be appropriate, because it may not be
possible for the auditor to obtain sufficient appropriate audit evidence regarding management’s use
of the going concern basis of accounting in the preparation of the financial statements.

QNO Preliminary Assessment by Management Regarding Old course-- (M21R)
570.15 Going Concern Bhaskar CNO- SA570.040
When performing risk assessment procedures as required by SA 315, the auditor shall consider whether
events or conditions exist that may cast significant doubt on the entity’s ability to continue as a going concern.
In so doing, the auditor has determined that management of XYZ Ltd has already performed a preliminary

assessment of the entity’s ability to continue as a going concern. Explain how would auditor of XYZ Ltd proceed
in the above case. Also explain how would the auditor proceed if such an assessment has not yet been
performed by the management.
Answer When performing risk assessment procedures as required by SA 315, the auditor shall consider whether
events or conditions exist that may cast significant doubt on the entity’s ability to continue as a going
concern.

In so doing, the auditor shall determine whether management has already performed a preliminary
assessment of the entity’s ability to continue as a going concern, and:

(i) If such an assessment has been performed, the auditor shall discuss the assessment with
management and determine whether management has identified events or conditions that, individually

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