Auditing and EthicsQuestion 5488 of 212
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11. Which kind of audit report will the auditor issue, if the use of going concern basis of accounting is appropriate, but a material uncertainty exists and adequate disclosure of the material uncertainty is made in the financial statements by the management?

Options

AAdverse opinion
BDisclaimer of opinion
CUnmodified opinion
DQualified opinion
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Correct Answer

Option CUnmodified opinion

All Options:

  • AAdverse opinion
  • BDisclaimer of opinion
  • CUnmodified opinion
  • DQualified opinion

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Detailed Solution & Explanation

When considering the type of audit report to be issued, the auditor must evaluate the appropriateness of the going concern basis of accounting and whether there are any material uncertainties that could cast significant doubt on the entity's ability to continue as a going concern.
In this scenario, the use of the going concern basis of accounting is deemed appropriate, which means the auditor believes the entity will be able to continue its operations for the foreseeable future.
However, there exists a material uncertainty that could potentially impact the entity's ability to continue as a going concern.
The key factor here is that adequate disclosure of this material uncertainty is made in the financial statements by the management.
According to auditing standards, when the use of the going concern basis is appropriate but there is a material uncertainty, and the entity's management has made adequate disclosures about this uncertainty in the financial statements, the auditor should issue an unmodified opinion with an emphasis-of-matter paragraph.
This emphasis-of-matter paragraph is used to draw users' attention to the material uncertainty and its potential implications, but it does not affect the auditor's opinion on the fairness and accuracy of the financial statements.
Therefore, the auditor will issue an unmodified opinion, as the financial statements are presented fairly and in accordance with the applicable financial reporting framework, and the material uncertainty is adequately disclosed.
Hence, **Option C** is the correct answer.

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