(c) Audit procedures if Smithson is not considered to be a going concern
– Discuss the situation again with the directors. Consider whether additional disclosures are required in the financial
statements or whether the financial statements should be prepared on a ‘break up’ basis.
– Explain to the directors that if additional disclosure or restatement of the financial statements is not made then the
auditor will have to modify the audit report.
– Consider how the audit report should be modified. Where the directors provide adequate disclosure of the going concern
situation of Smithson, then an emphasis of matter paragraph is likely to be appropriate to draw attention to the going
concern disclosures.
– Where the directors do not make adequate disclosure of the going concern situation then qualify the audit report making
reference to the going concern problem. The qualification will be an ‘except for’ opinion or an adverse opinion depending
on the auditor’s opinion of the situation. |
