[AMERICANDREAM]

I’m having a disagreement with my friend I’m studying with. If there is a substantial doubt about an entity’s going concern, I think that the auditor needs to add an emphasis-of-matter or explanatory paragraph but the opinion is unmodified/unqualified given that management has a plan for the substantial doubt and has disclosed it adequately.

My friend, on the other hand, believes if there is a extremely severe substantial doubt of an entity’s going concern, then disclaimer of opinion could result. He has raised the recent Toshiba incident as an example.

Could you guys shed some light on this issue for us? Thanks

GoingConcern.com

[AMERICANDREAM]

anyone?

[ThomasHallberg]

Okay so if management has properly disclosed the going concern (no GAAP departure) then yes, we can issue an emphasis-of-matter or explanatory paragraph with an unmodified/unqualified opinion. If they do not disclose, this would be a qualified or adverse opinion. No disclaimers. You are also correct about considering management has a plan for the substantial doubt and has disclosed it adequately

[klk8313]

I have a graphic, but I couldn't get the picture to post. Your friend is also correct – if there is a significant going concern uncertainty, you would issue a disclaimer.

[ThomasHallberg]

I read into the AU-C and I am not totally sure you are right. I suppose you might be associating a significant going concern uncertainty with management integrity, leading more towards something more fraudulent? AU-C 570 A6-A8. Please tell me if you found that in the standards if I am mistaken.

[Anonymous]

Generally, a fully disclosed going concern issue will result in an unmodified opinion with an emphasis of matter paragraph. It's unmodified because the auditor feels that the client has done a decent job of calling out the issue. However, if the auditor is uncertain about the adequacy of the disclosures, then they would issue a disclaimer. So if the auditor feels that the client did not do a good job of disclosing the reasons for the going concern, then they disclaim the opinion. So an auditor can do either or.

https://www.aicpa.org/Research/Standards/AuditAttest/DownloadableDocuments/AU-C-00570.pdf

[klk8313]

My information came from Becker, but I did also look into the AU-C section you referenced. The last paragraph reads:

“.18 Nothing in this section precludes an auditor from disclaiming an opinion
in cases involving uncertainties. When the auditor disclaims an opinion,
the report should not include the going-concern emphasis-of-matter paragraph
described in paragraph .15 of this section but, rather, describe the substantive
reasons for the auditor's disclaimer of opinion in the auditor's report as required
by section 705.4 The auditor should consider the adequacy of disclosure of the
uncertainties and their possible effects on the financial statements as described
in paragraph .12 of this section even when disclaiming an opinion.”

I believe it's fairly uncommon and I'm sure it would be made clear in an exam question, but it is a possible outcome.

[CPA8675309]

@curlygirl1213, Wouldn't it be an Adverse opinion? I'm just learning opinions now, so I don't pretend to be an expert. I thought a Disclaimer of Opinion was for pervasive scope limitations. I thought material misstatements and disclosure issues, if pervasive, resulted in an adverse opinion.

Otherwise, OP, I consider you more correct than your friend, because if properly disclosed, an otherwise unmodified opinion, would need an emphasis of matter paragraph.

[ThomasHallberg]

KIK- Yeah that seems to be a grey area, interesting, thanks I def wont forget this on the test haha. CPA867, a company can suck (going concern issue) but still present fairly stated financial statements resulting in an Unqual/Unmod opinion. I would be sure to know that an Adverse/Qualified opinion is only if management fails to disclose the issue. i.e. GAAP issue

[CPA so close, so far away]

Unmodified/ Unqualified or Disclaimer of opinion are both appropriate.

[Anonymous]

@CPA8675309 An adverse opinion would be used if the client did not disclose the going concern problem at all. That would be not allowed. A disclaimer extends from the idea of uncertainty – i.e. a scope limitation prevents them from knowing the correct inventory amount or something. They would issue a disclaimer because they cannot be certain of what the amount of inventory should be. Same applies here – a disclaimer would be issued if the auditor is uncertain if the company disclosed well enough, if they are even experiencing a going concern issue, etc. So they are covering themselves by not issuing an opinion at all. Someone above said the disclaimer is very rare, which is true. I think for the exam, they would say what is MOST APPROPRIATE, in which case it is most likely unmodified.

[Mandu4ever]

Usually, an unmodified with emphasis is rendered if the entity's disclosures are adequate. However, the auditor is not prohibited from choosing to issue a disclaimer. Hence, both of you guys are correct.

[AMERICANDREAM]

Thanks everyone for your feedback!

So the general consensus here is:
* Going concern is generally unmodified/unqualified with emphasis of matter/explanatory, given that management has disclosed it properly and adequately.
* However, if management fails to disclose it or does NOT disclose it adequately –> generally qualified/adverse because this is a GAAP issue.
* If management discloses the matter but the auditor is not 100% sure about the adequacy of the disclosure, the auditor can issue disclaimer of opinion to be safe (scope limitation)

[Author]

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