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**Descriptive Auditing Case Study — SA 570 Going Concern - Evaluation of Events and Auditor's Reporting Duties (Marks: 6)** During the statutory audit of Surya Solar Power Ltd. for the year ended 31st March 2024, the audit team observes that the company has incurred continuous cash losses over the last 3 years and its net worth is completely eroded. Major trade creditors have refused further supplies, and a key bank has recalled a term loan of ₹121,000,000. Management contends that it is in talks with strategic investors and has prepared the financial statements on a Going Concern basis without disclosing these circumstances in the notes to accounts. **As the Statutory Auditor, examine:** (a) The auditor's responsibilities under SA 570 (Revised) 'Going Concern'. (b) The audit procedures to be performed to evaluate management's plans. (c) The reporting implications if management refuses to make adequate disclosures.

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Detailed Solution & Explanation

### Suggested Solution — ICAI Standards on Auditing #### 1. Auditor's Responsibilities under SA 570 (Revised): - The auditor's responsibility is to obtain sufficient appropriate audit evidence regarding the appropriateness of management's use of the going concern basis of accounting. - The auditor must conclude whether a **material uncertainty exists** related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. #### 2. Audit Procedures to be Performed: - Inquire of management as to its knowledge of events or conditions beyond the period of management's assessment. - Analyze and discuss cash flow, profit, and other relevant forecasts with management. - Review terms of debentures and loan agreements and determine whether any have been breached. - Read minutes of meetings of shareholders and the Board of Directors. - Evaluate management's plans for future actions, including inquiries regarding binding commitments from prospective strategic investors. #### 3. Reporting Implications: - **If Adequate Disclosure is Made**: The auditor would express an unmodified opinion and include a dedicated section under the heading **'Material Uncertainty Related to Going Concern'**. - **If Adequate Disclosure is NOT Made**: As in the present case where management refuses to disclose these critical events, the financial statements are materially misstated. The auditor shall express a **Qualified Opinion or Adverse Opinion**, as appropriate, in accordance with SA 705 (Revised).

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