Module: | SEBI LODR & Corporate Governance Frameworks
Q38: Consider the following statements regarding the auditor's responsibilities relating to Going Concern under the revised IndSA 570 framework:
1. The auditor must explicitly evaluate management's assessment of the entity's ability to continue as a going concern for a period of at least 12 months from the date of the financial statements.
2. If the auditor concludes that a material uncertainty exists regarding the going concern assumption, they must automatically issue an adverse audit opinion regardless of disclosures.
3. If adequate disclosure about the material uncertainty is made in the financial statements, the auditor shall express an unmodified opinion and include a separate section headed "Material Uncertainty Related to Going Concern".
Which of the above statements is/are incorrect?
2. If the auditor concludes that a material uncertainty exists regarding the going concern assumption, they must automatically issue an adverse audit opinion regardless of disclosures.
3. If adequate disclosure about the material uncertainty is made in the financial statements, the auditor shall express an unmodified opinion and include a separate section headed "Material Uncertainty Related to Going Concern".
Which of the above statements is/are incorrect?
✅ Correct Answer: B
🎯 Quick Answer:
B. Only 2 is incorrect.Structural Breakdown: Statement 1 is correct; the 12-month forward-looking evaluation is a strict requirement for the auditor.
Statement 2 is incorrect; if a material uncertainty exists but is adequately and transparently disclosed by management in the financial statements, the auditor does not issue an adverse opinion.
Statement 3 is correct; in the case of adequate disclosure, the auditor issues an unmodified opinion but highlights the risk in a dedicated "Material Uncertainty Related to Going Concern" paragraph.
Historical/Related Context: The NFRA emphasized IndSA 570 compliance after several high-profile companies collapsed shortly after receiving clean audit reports, revealing that auditors had ignored severe liquidity crises and debt defaults.
Causal Reasoning: The framework allows an unmodified opinion when disclosures are adequate because the primary goal of the audit report is to ensure shareholders are fully informed of the risks, not to prematurely trigger the company's collapse by unnecessarily issuing an adverse opinion.