Dear All, Please see below the response
Question from the Student…..
The solution says that an qualified opinion or adverse would not be appropriate for substantial doubts as a going concern, and that only a unqualified opinion with an explanatory paragraph or a disclaimer is appropriate. However, in the rogers book, it specifically says that if we have substantial doubts as a going concern and there is not adequate disclosure, we should issue an qualified opinion with an explanatory paragraph. So which is correct? Thank you.
Response from CPA review provider.
Hello
Wiley AUD Mod 5 Q 27 requires you to determine the auditor’s responsibility when s/he concludes that there is SUBSTANTIAL DOUBT about an entity’s ability to continue as a going concern for a REASONABLE PERIOD OF TIME.
SAS No. 59 requires the auditor to evaluate whether there is substantial doubt about the company’s ability to continue as a going concern for a reasonable period of time, not to exceed one year beyond the date of the financial statements being audited. If the auditor has substantial doubt about the entity’s ability to continue in existence for that length of time, the auditor should add an explanatory paragraph highlighting the client’s disclosure of the going concern uncertainty to the standard UNQUALIFIED report.
If there is “substantial doubt” concerning the company's ability to continue as a going concern, AND DISCLOSURE IS ADEQUATE, either a disclaimer of opinion or an unqualified opinion with an explanatory paragraph is acceptable.
If a client has not properly disclosed a “material” going concern doubt, this will be considered inadequate disclosure, a form of GAAP departure, and will require at least a qualified opinion, with an explanatory paragraph BEFORE the opinion paragraph instead of after. As in any case where a client refuses to disclose a material matter with respect to GAAP, the auditor may chose to disclaim an opinion or withdraw from the engagement.
I hope this answers your question.
FAR 05/27/14; 786/110 - Done !
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