[Eric]

Hello,

In my previous studying, I remember going over questions about a company having going-concern issues without properly disclosing them. The correct answer would be to issue a Qualified w/ Explanatory.

I never understood why you would add an explanatory if those paragraphs are only added for properly disclosed items.

In my current review (using both Roger and Wiley) I have not come across a practice question concerning this, or else I would post it. I know going-concern is the issue addressed in the CPA update this year. I have seen other posters state that you do add an explanatory, while other posters have said you do not. Could someone please clarify this? Thank you.

[Recked]

The emphasis of a matter paragraph is added to draw attention to material items.
Most people have financials audited either because its required 1934, or because they need them for financing, either through debt issue, stock sales, or loans.
Although the going concern is listed, it is buried in the disclosures in the back.
If a bank were going to use financials to determine whether to lend a company money, its good to point out that this business may not be around a year from now, which would impact the decisions of the lender.

The financials are not mis-stated since they comply with GAAP, and contain the proper disclosures, but going concern could be something that needs additional attention brought to it.

Does that help at all?

Also, be aware that Unmodified and Unqualified might be used interchangeably.
Don't presume an answer is incorrect because the question states PCAOB and you are expecting to see a specific answer.

[Eric]

Thank you for your response. What I am gathering is that a going-concern needs an emphasis-of-matter regardless of disclosure, because that would be very important information for the third-party user. (your example- a bank debating whether to give a loan would need to know if the entity will be around next year, regardless if that is disclosed in the financials.)

[Recked]

To clarify.
If there is a going concern and it is NOT disclosed, that is a departure from GAAP, and would be the basis for your likely adverse opinion if it were very material, or your except for if its only moderately material.

If it is disclosed, the disclosure may not be enough to notify/warm the intended users of the F/S, so you could/would add emphasis of a matter to draw attention to the material matter.

[Author]

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