ACCA F8 考试：GOING CONCERN (Part 3)
USE OF THE GOING CONCERN ASSUMPTION IS APPROPRIATE BUT A MATERIAL UNCERTAINTY EXISTS
A reporting entity that considers the going concern assumption to be appropriate, but still has a material uncertainty present will have to make disclosure of the fact in the financial statements that there are uncertain future transactions/events that may result in the entity being unable to continue in business in the foreseeable future.
The auditor will consider the adequacy of the disclosures made in the financial statements by management. If the auditor considers the disclosures to be adequate, then the audit report will be modified by the inclusion of an Emphasis of Matter paragraph. The Emphasis of Matter paragraph will follow immediately after the opinion paragraph and will always cross-reference the reader’s attention to the relevant disclosure in the financial statements, and the opinion will be unmodified.
If the auditor concludes that the disclosures are inadequate, or if management have not made any disclosure at all and management refuse to remedy the situation, the opinion will be qualified or adverse.
In both cases a paragraph explaining the basis for the qualified or adverse opinion will be included before the opinion paragraph and the opinion paragraph will be qualified ‘except for’ or express an adverse opinion.
USE OF THE GOING CONCERN ASSUMPTION IS INAPPROPRIATE
Consider the following example:
An entity has borrowings of $10m which became immediately repayable in full on 31 March 2012. The entity is already in breach of its agreed overdraft and the bank has refused to renew the borrowings. The entity has also been unsuccessful in applying to other financial institutions for re-financing. It is highly unlikely that the entity will be successful in renewing or re-financing the $10m borrowings and, in such an event, the directors will have no alternative but to cease to trade. The bank have already indicated that they are shortly going to commence legal proceedings to force the company to cease trading and sell off its assets to generate funds to pay off some of the borrowings. In order to avoid the entity’s credit rating suffering any further decline, the directors have refused to make disclosures in the financial statements and have prepared the financial statements for the year ended 31 March 2012 on the going concern basis.
In this example it is clear that the going concern basis is inappropriate in the entity’s circumstances. The directors have no realistic alternative but to liquidate in order to raise funds to pay back the bank and the bank have already confirmed that they will commence legal proceedings to force the entity into selling off assets to raise finance to repay their borrowings.
If the directors do not make adequate disclosure of the material uncertainty, the auditor must express an adverse opinion. An adverse opinion states that the financial statements do not present fairly (or give a true and fair view). This opinion will be expressed regardless of whether or not the financial statements include disclosure of the inappropriateness of management’s use of the going concern assumption.
MANAGEMENT UNWILLING TO MAKE OR EXTEND ITS ASSESSMENT
There are situations that may arise when the auditor may request management to make an assessment, or extend their original assessment of going concern. If management refuse to make, or extend, an assessment of going concern the auditor will consider the implications for the report.
CONCLUSION
Going concern is an important syllabus area for Paper F8 and candidates attempting the exam must ensure they are familiar with the requirements of the syllabus. This article has covered management’s responsibility, the auditor’s responsibility, indicators that an entity may not be a going concern and the reporting aspects relating to going concern. Candidates need to be aware that the syllabus also requires them to:
• define and discuss the significance of the concept of going concern
• explain the importance of, and the need for, going concern reviews, and
• discuss the disclosure requirements in relation to going concern issues.
Candidates are therefore encouraged to practise as many exam standard questions as possible as the syllabus offers a variety of ways in which the concept of going concern can be examined.
Written by a member of the Paper F8 examining team
Reference
(1) ISA 570, paragraph 5
Last updated: 20 Apr 2015
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