Significant Delay in the Approval of Financial Statements
26. If there is significant delay in the approval of the financial statements by management or those charged with governance after the date of the financial statements, the auditor shall inquire as to the reasons for the delay. If the auditor believes that the delay could be related to events or conditions relating to the going concern assessment, the auditor shall perform those additional audit procedures necessary, as described in paragraph 16, as well as consider the 4 SA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report. 5 SA 260 (Revised), Communication with Those Charged with Governance, paragraph 13. effect on the auditor’s conclusion regarding the existence of a material uncertainty, as described in paragraph 18. ***
Application and Other Explanatory Material
Scope of this SA (Ref: Para 1)
A1. SA 7016 deals with the auditor’s responsibility to communicate key audit matters in the auditor’s report. That SA acknowledges that, when SA 701 applies, matters relating to going concern may be determined to be key audit matters, and explains that a material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern is, by its nature, a key audit matter.7
Going Concern Basis of Accounting (Ref: Para. 2)
Considerations Specific to Public Sector Entities
A2. Management’s use of the going concern basis of accounting is also relevant to public sector entities. Going concern risks may arise, but are not limited to, situations where public sector entities operate on a for-profit basis, where government support may be reduced or withdrawn, or in the case of privatization. Events or conditions that may cast significant doubt on an entity’s ability to continue as a going concern in the public sector may include situations where the public sector entity lacks funding for its continued existence or when policy decisions are made that affect the services provided by the public sector entity.
Risk Assessment Procedures and Related Activities
Events or Conditions That May Cast Significant Doubt on the Entity’s
Ability to Continue as a Going Concern (Ref: Para. 10)
A3. The following are examples of events or conditions that, individually or collectively, may cast significant doubt on the entity’s ability to continue as a going concern. This listing is not all-inclusive nor does the existence of one or more of the items always signify that a material uncertainty exists.
Net liability or net current liability position. Fixed-term borrowings approaching maturity without realistic prospects of 6 SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report. 7 See paragraphs 15 and A41 of SA 701. renewal or repayment; or excessive reliance on short-term borrowings to finance long-term assets. Indications of withdrawal of financial support by creditors.
Negative operating cash flows indicated by historical or prospective
financial statements. Adverse key financial ratios. Substantial operating losses or significant deterioration in the value of assets used to generate cash flows. Arrears or discontinuance of dividends. Inability to pay creditors on due dates. Inability to comply with the terms of loan agreements. Change from credit to cash-on-delivery transactions with suppliers. Inability to obtain financing for essential new product development or other essential investments.
Management intentions to liquidate the entity or to cease operations. Loss of key management without replacement. Loss of a major market, key customer(s), franchise, license, or principal supplier(s). Labor difficulties. Shortages of important supplies. Emergence of a highly successful competitor.
Non-compliance with capital or other statutory or regulatory requirements, such as solvency or liquidity requirements for financial institutions. Pending legal or regulatory proceedings against the entity that may, if successful, result in claims that the entity is unlikely to be able to satisfy. Changes in law or regulation or government policy expected to adversely affect the entity. Uninsured or underinsured catastrophes when they occur. The significance of such events or conditions often can be mitigated by other factors. For example, the effect of an entity being unable to make its normal debt repayments may be counter-balanced by management’s plans to maintain adequate cash flows by alternative means, such as by disposing of assets, rescheduling loan repayments, or obtaining additional capital. Similarly, the loss of a principal supplier may be mitigated by the availability of a suitable alternative source of supply.
A4. The risk assessment procedures required by paragraph 10 help the auditor to determine whether management’s use of the going concern basis of accounting is likely to be an important issue and its impact on planning the audit. These procedures also allow for more timely discussions with management, including a discussion of management’s plans and resolution of any identified going concern issues.
Considerations Specific to Smaller Entities (Ref: Para. 10)
A5. The size of an entity may affect its ability to withstand adverse conditions. Small entities may be able to respond quickly to exploit opportunities, but may lack reserves to sustain operations.
A6. Conditions of particular relevance to small entities include the risk that banks and other lenders may cease to support the entity, as well as the possible loss of a principal supplier, major customer, key employee, or the right to operate under a license, franchise or other legal agreement. Remaining Alert throughout the Audit for Audit Evidence about Events or
Conditions (Ref: Para. 11)
A7. SA 315 requires the auditor to revise the auditor’s risk assessment and modify the further planned audit procedures accordingly when additional audit evidence is obtained during the course of the audit that affects the auditor’s assessment of risk.8 If events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern are identified after the auditor’s risk assessments are made, in addition to performing the procedures in paragraph 16, the auditor’s assessment of the risks of material misstatement may need to be revised. The existence of such events or conditions may also affect the nature, timing and extent of the auditor’s further procedures in response to the assessed risks. SA 3309 establishes requirements and provides guidance on this issue. 8 SA 315, paragraph 31 9 SA 330, The Auditor’s Responses to Assessed Risks
Evaluating Management’s Assessment
Management’s Assessment and Supporting Analysis and the Auditor’s
Evaluation (Ref: Para. 12)
A8. Management’s assessment of the entity’s ability to continue as a going concern is a key part of the auditor’s consideration of management’s use of the going concern basis of accounting.
A9. It is not the auditor’s responsibility to rectify the lack of analysis by management. In some circumstances, however, the lack of detailed analysis by management to support its assessment may not prevent the auditor from concluding whether management’s use of the going concern basis of accounting is appropriate in the circumstances. For example, when there is a history of profitable operations and a ready access to financial resources, management may make its assessment without detailed analysis. In this case, the auditor’s evaluation of the appropriateness of management’s assessment may be made without performing detailed evaluation procedures if the auditor’s other audit procedures are sufficient to enable the auditor to conclude whether management’s use of the going concern basis of accounting in the preparation of the financial statements is appropriate in the circumstances.
A10. In other circumstances, evaluating management’s assessment of the entity’s ability to continue as a going concern, as required by paragraph 12, may include an evaluation of the process management followed to make its assessment, the assumptions on which the assessment is based and management’s plans for future action and whether management’s plans are feasible in the circumstances.
The Period of Management’s Assessment (Ref: Para. 13)
A11. Most financial reporting frameworks requiring an explicit management assessment specify the period for which management is required to take into account all available information.
Considerations Specific to Smaller Entities (Ref: Para. 12–13)
A12. In many cases, the management of smaller entities may not have prepared a detailed assessment of the entity’s ability to continue as a going concern, but instead may rely on in-depth knowledge of the business and anticipated future prospects. Nevertheless, in accordance with the requirements of this SA, the auditor needs to evaluate management’s assessment of the entity’s ability to continue as a going concern. For smaller entities, it may be appropriate to discuss the medium and long-term financing of the entity with management, provided that management’s contentions can be corroborated by sufficient documentary evidence and are not inconsistent with the auditor’s understanding of the entity. Therefore, the requirement in paragraph 13 for the auditor to request management to extend its assessment may, for example, be satisfied by discussion, inquiry and inspection of supporting documentation, for example, orders received for future supply, evaluated as to their feasibility or otherwise substantiated.
A13. Continued support by owner-managers is often important to smaller entities’ ability to continue as a going concern. Where a small entity is largely financed by a loan from the owner-manager, it may be important that these funds are not withdrawn. For example, the continuance of a small entity in financial difficulty may be dependent on the owner-manager subordinating a loan to the entity in favor of banks or other creditors, or the owner-manager supporting a loan for the entity by providing a guarantee with his or her personal assets as collateral. In such circumstances, the auditor may obtain appropriate documentary evidence of the subordination of the owner-manager’s loan or of the guarantee. Where an entity is dependent on additional support from the owner-manager, the auditor may evaluate the owner-manager’s ability to meet the obligation under the support arrangement. In addition, the auditor may request written confirmation of the terms and conditions attaching to such support and the owner-manager’s intention or understanding.
Period beyond Management’s Assessment (Ref: Para. 15)
A14. As required by paragraph 11, the auditor remains alert to the possibility that there may be known events, scheduled or otherwise, or conditions that will occur beyond the period of assessment used by management that may bring into question the appropriateness of management’s use of the going concern basis of accounting in preparing the financial statements. Since the degree of uncertainty associated with the outcome of an event or condition increases as the event or condition is further into the future, in considering events or conditions further in the future, the indications of going concern issues need to be significant before the auditor needs to consider taking further action. If such events or conditions are identified, the auditor may need to request management to evaluate the potential significance of the event or condition on its assessment of the entity’s ability to continue as a going concern. In these circumstances, the procedures in paragraph 16 apply.
A15. Other than inquiry of management, the auditor does not have a responsibility to perform any other audit procedures to identify events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern beyond the period assessed by management, which, as discussed in paragraph 13, would be at least twelve months from the date of the financial statements.
Additional Audit Procedures When Events or Conditions Are
Identified (Ref: Para.16)
A16. Audit procedures that are relevant to the requirement in paragraph 16 may include the following: • Analyzing and discussing cash flow, profit and other relevant forecasts with management. • Analyzing and discussing the entity’s latest available interim financial statements. •
Reading the terms of debentures and loan agreements and determining
whether any have been breached. •
Reading minutes of the meetings of shareholders, those charged with
governance and relevant committees for reference to financing difficulties. • Inquiring of the entity’s legal counsel regarding the existence of litigation and claims and the reasonableness of management’s assessments of their outcome and the estimate of their financial implications. • Confirming the existence, legality and enforceability of arrangements to provide or maintain financial support with related and third parties and assessing the financial ability of such parties to provide additional funds. • Evaluating the entity’s plans to deal with unfilled customer orders. • Performing audit procedures regarding subsequent events to identify those that either mitigate or otherwise affect the entity’s ability to continue as a going concern. • Confirming the existence, terms and adequacy of borrowing facilities. • Obtaining and reviewing reports of regulatory actions. • Determining the adequacy of support for any planned disposals of assets.
Evaluating Management’s Plans for Future Actions (Ref: Para. 16(b))
A17. Evaluating management’s plans for future actions may include inquiries of management as to its plans for future action, including, for example, its plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital.
The Period of Management’s Assessment (Ref: Para. 16(c))
A18. In addition to the procedures required in paragraph 16(c), the auditor may compare: • The prospective financial information for recent prior periods with historical results; and • The prospective financial information for the current period with results achieved to date.
A19. Where management’s assumptions include continued support by third parties, whether through the subordination of loans, commitments to maintain or provide additional funding, or guarantees, and such support is important to an entity’s ability to continue as a going concern, the auditor may need to consider requesting written confirmation (including of terms and conditions) from those third parties and to obtain evidence of their ability to provide such support.
Written Representations (Ref: Para. 16(e))
A20. The auditor may consider it appropriate to obtain specific written representations beyond those required in paragraph 16 in support of audit evidence obtained regarding management’s plans for future actions in relation to its going concern assessment and the feasibility of those plans.
Material Uncertainty Related to Events or Conditions that May Cast
Significant Doubt on the Entity’s Ability to Continue as a Going Concern (Ref: Para. 18-19)
A21. The phrase “material uncertainty” means the uncertainties related to events or conditions which may cast significant doubt on the entity’s ability to continue as a going concern that should be disclosed in the financial statements. In some other financial reporting frameworks the phrase “significant uncertainty” is used in similar circumstances.
Adequacy of Disclosure when Events or Conditions Have Been Identified
and a Material Uncertainty Exists
A22. Paragraph 18 explains that a material uncertainty exists when the magnitude of the potential impact of the events or conditions and the likelihood of occurrence is such that appropriate disclosure is necessary to achieve fair presentation (for fair presentation frameworks) or for the financial statements not to be misleading (for compliance frameworks). The auditor is required by paragraph 18 to conclude whether such a material uncertainty exists regardless of whether or how the applicable financial reporting framework defines a material uncertainty.
A23. Paragraph 19 requires the auditor to determine whether the financial statement disclosures address the matters set forth in that paragraph. This determination is in addition to the auditor determining whether disclosures about a material uncertainty, required by the applicable financial reporting framework, are adequate. Disclosures required by some financial reporting frameworks that are in addition to matters set forth in paragraph 19 may include disclosures about: Management’s evaluation of the significance of the events or conditions relating to the entity’s ability to meet its obligations; or Significant judgments made by management as part of its assessment of the entity’s ability to continue as a going concern. Some financial reporting frameworks may provide additional guidance regarding management’s consideration of disclosures about the magnitude of the potential impact of the principal events or conditions, and the likelihood and timing of their occurrence. Adequacy of Disclosures When Events or Conditions Have Been Identified but
No Material Uncertainty Exists (Ref: Para. 20)
A24. Even when no material uncertainty exists, paragraph 20 requires the auditor to evaluate whether, in view of the requirements of the applicable financial reporting framework, the financial statements provide adequate disclosure about events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. Some financial reporting frameworks may address disclosures about: Principal events or conditions; Management’s evaluation of the significance of those events or conditions in relation to the entity’s ability to meet its obligations; Management’s plans that mitigate the effect of these events or conditions; or Significant judgments made by management as part of its assessment of the entity’s ability to continue as a going concern.
A25. When the financial statements are prepared in accordance with a fair presentation framework, the auditor’s evaluation as to whether the financial statements achieve fair presentation includes the consideration of the overall presentation, structure and content of the financial statements, and whether the financial statements, including the related notes, represent the underlying transactions and events in a manner that achieves fair presentation.10 Depending on the facts and circumstances, the auditor may determine that additional disclosures are necessary to achieve fair presentation. This may be the case, for example, when events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern but, based 10 SA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, paragraph 14. on the audit evidence obtained, the auditor concludes that no material uncertainty exists, and no disclosures are explicitly required by the applicable financial reporting framework regarding these circumstances.
Implications for the Auditor’s Report
Use of Going Concern Basis of Accounting is Inappropriate (Ref: Para. 21)
A26. If the financial statements have been prepared using the going concern basis of accounting but, in the auditor’s judgment, management’s use of the going concern basis of accounting in the financial statements is inappropriate, the requirement in paragraph 21 for the auditor to express an adverse opinion applies regardless of whether or not the financial statements include disclosure of the inappropriateness of management’s use of the going concern basis of accounting.
A27. When the use of the going concern basis of accounting is not appropriate in the circumstances, management may be required, or may elect, to prepare the financial statements on another basis (e.g., liquidation basis). The auditor may be able to perform an audit of those financial statements provided that the auditor determines that the other basis of accounting is acceptable in the circumstances. The auditor may be able to express an unmodified opinion on those financial statements, provided there is adequate disclosure therein about the basis of accounting on which the financial statements are prepared, but may consider it appropriate or necessary to include an Emphasis of Matter paragraph in accordance with SA 706 (Revised)11 in the auditor’s report to draw the user’s attention to that alternative basis of accounting and the reasons for its use. Use of the Going Concern Basis of Accounting is Appropriate but a
Material Uncertainty Exists (Ref: Para. 22-23)
A28. The identification of a material uncertainty is a matter that is important to users’ understanding of the financial statements. The use of a separate section with a heading that includes reference to the fact that a material uncertainty related to going concern exists alerts users to this circumstance.
A29. The Appendix to this SA provides illustrations of the statements that are required to be included in the auditor’s report on the financial statements when “the Accounting Principles generally accepted in India” is the applicable financial reporting framework. If an applicable financial reporting framework other than abovementioned framework is used, the illustrative statements presented in the Appendix to this SA may need to be adapted to reflect the application of the other financial reporting framework in the circumstances. 11 SA 706(Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report.
A30. Paragraph 22 establishes the minimum information required to be presented in the auditor’s report in each of the circumstances described. The auditor may provide additional information to supplement the required statements, for example to explain: • That the existence of a material uncertainty is fundamental to users’ understanding of the financial statements;12 or • How the matter was addressed in the audit. (Ref: Para. A1) Adequate Disclosure of a Material Uncertainty is Made in the Financial
Statements (Ref: Para. 22)
A31. Illustration 1 of the Appendix to this SA is an example of an auditor’s report when the auditor has obtained sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern basis of accounting but a material uncertainty exists and disclosure is adequate in the financial statements. The Appendix of SA 700 (Revised) also includes illustrative wording to be included in the auditor’s report for all entities in relation to going concern to describe the respective responsibilities of those responsible for the financial statements and the auditor in relation to going concern. Adequate Disclosure of a Material Uncertainty is Not Made in the Financial
Statements (Ref: Para. 23)
A32. Illustrations 2 and 3 of the Appendix to this SA are examples of auditor’s reports containing qualified and adverse opinions, respectively, when the auditor has obtained sufficient appropriate audit evidence regarding the appropriateness of the management’s use of the going concern basis of accounting but adequate disclosure of a material uncertainty is not made in the financial statements.
A33. In situations involving multiple uncertainties that are significant to the financial statements as a whole, the auditor may consider it appropriate in extremely rare cases to express a disclaimer of opinion instead of including the statements required by paragraph 22. SA 705 (Revised) provides guidance on this issue.13
Communication with Regulators (Ref: Para. 22−23)
A34. When the auditor of a regulated entity considers that it may be necessary to include a reference to going concern matters in the auditor’s report, the auditor may have a duty to communicate with the applicable regulatory, enforcement or supervisory authorities. 12 SA 706(Revised), paragraph A2. 13 SA 705(Revised), paragraph 10 Management Unwilling to Make or Extend Its Assessment (Ref: Para. 24)
A35. In certain circumstances, the auditor may believe it necessary to request management to make or extend its assessment. If management is unwilling to do so, a qualified opinion or a disclaimer of opinion in the auditor’s report may be appropriate, because it may not be possible for the auditor to obtain sufficient appropriate audit evidence regarding management’s use of the going concern basis of accounting in the preparation of the financial statements, such as audit evidence regarding the existence of plans management has put in place or the existence of other mitigating factors.
(Ref: Para. A29, A31–A32)
Illustrations of Auditor’s Reports Relating to Going Concern
• Illustration 1: An auditor’s report containing an unmodified opinion when the auditor has concluded that a material uncertainty exists and disclosure in the financial statements is adequate. • Illustration 2: An auditor’s report containing a qualified opinion when the auditor has concluded that a material uncertainty exists and that the financial statements are materially misstated due to inadequate disclosure. • Illustration 3: An auditor’s report containing an adverse opinion when the auditor has concluded that a material uncertainty exists and the financial statements omit the required disclosures relating to a material uncertainty. Illustration 1 – Unmodified Opinion When a Material Uncertainty Exists and
Disclosure in the Financial Statements is Adequate
For purposes of this illustrative auditor’s report, the following circumstances are assumed: • Audit of a complete set of financial statements of a listed company (registered under the Companies Act, 2013) using a fair presentation framework. The audit is not a group audit (i.e., SA 600 does not apply). • The financial statements are prepared by management of the company in accordance with the accounting Standards prescribed under section 133 of the Companies Act, 2013. • The terms of the audit engagement reflect the description of management’s responsibility for the financial statements in SA 210.14 •
The auditor has concluded an unmodified (i.e., “clean”) opinion is
appropriate based on the audit evidence obtained. • The relevant ethical requirements that apply to the audit comprise the Code of Ethics issued by ICAI together with the other relevant ethical requirements relating to the audit and the auditor refers to both. • Based on the audit evidence obtained, the auditor has concluded that a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. The disclosure of the material uncertainty in the financial statements is adequate. • Key audit matters have been communicated in accordance with SA 701. • The auditor has obtained all of the other information prior to the date of the auditor's report and has not identified a material misstatement of the other information. • Those responsible for oversight of the financial statements differ from those responsible for the preparation of the financial statements. • In addition to the audit of the financial statements, the auditor has other reporting responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
14 SA 210, Agreeing the Terms of Audit Engagements.
Report on the Audit of the Standalone Financial Statements
We have audited the standalone financial statements of ABC Company Limited (“the Company”), which comprise the balance sheet as at 31st March 20XX, and the statement of Profit and Loss, (statement of changes in equity)15 and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information [in which are included the Returns for the year ended on that date audited by the branch auditors of the Company’s branches located at (location of branches)]16. In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 20XX, and its profit/loss, (changes in equity)17 and its cash flows for the year ended on that date.
We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note XX in the financial statements, which indicates that the Company incurred a net loss of Rs. ZZZ during the year ended March 31, 15 Where applicable. 16 Where applicable. 17 Where applicable 20XX and, as of that date, the Company’s current liabilities exceeded its total assets by Rs. YYY. As stated in Note 6, these events or conditions, along with other matters as set forth in Note XX, indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Material Uncertainty Related to Going Concern section, we have determined the matters described below to be the key audit matters to be communicated in our report. [Description of each key audit matter in accordance with SA 701.] Other Information [or another title if appropriate such as “Information
Other than the Financial Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in SA 720(Revised) – see Illustration 1 in Appendix 2 of SA 720(Revised).]
Responsibilities of Management and Those Charged with Governance for
the Financial Statements [Reporting in accordance with SA 700(Revised)–see Illustration 1 in SA 700 (Revised).18]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700(Revised) – see Illustration 1 in SA 700 (Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700(Revised) – see Illustration 1 in SA 700 (Revised).] While reporting under Section 143(3) of the Companies Act, 2013, the auditor is 18 Paragraphs 34 and 39 of SA 700 (Revised) require wording to be included in the auditor’s report for all entities in relation to going concern to describe the respective responsibilities of those responsible for the financial statements and the auditor in relation to going concern. required to suitably reword the wordings given in the Illustration in SA 700(Revised) to meet the circumstances of the audit.
(Firm’s Registration No.)
(Name of the Member signing the Audit Report) (Designation19) (Membership No.) Place of Signature: Date: 19 Partner or Proprietor, as the case may be Illustration 2 – Qualified Opinion When a Material Uncertainty Exists and the Financial Statements Are Materially Misstated Due to Inadequate
For purposes of this illustrative auditor’s report, the following circumstances are assumed: • Audit of a complete set of financial statements of a listed company using a fair presentation framework. The audit is not a group audit (i.e., SA 600 does not apply). • The financial statements are prepared by management of the company in accordance with the accounting Standards prescribed under section 133 of the Companies Act, 2013. • The terms of the audit engagement reflect the description of management’s responsibility for the financial statements in SA 210. • The relevant ethical requirements that apply to the audit comprise the Code of Ethics issued by ICAI together with the other relevant ethical requirements relating to the audit and the auditor refers to both. • Based on the audit evidence obtained, the auditor has concluded that a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. Note YY to the financial statements discusses the magnitude of financing arrangements, the expiration and the total financing arrangements; however the financial statements do not include discussion on the impact or the availability of refinancing or characterize this situation as a material uncertainty. • The financial statements are materially misstated due to the inadequate disclosure of the material uncertainty. A qualified opinion is being expressed because the auditor concluded that the effects on the financial statements of this inadequate disclosure are material but not pervasive to the financial statements. • Key audit matters have been communicated in accordance with SA 701. • The auditor has obtained all of the other information prior to the date of the auditor’s report and the matter giving rise to the qualified opinion on the financial statements also affects the other information. • Those responsible for oversight of the financial statements differ from those responsible for the preparation of the financial statements. • In addition to the audit of the financial statements, the auditor has other reporting responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial Statements
We have audited the standalone financial statements of ABC Company Limited (“the Company”), which comprise the balance sheet as at 31st March 20XX, and the statement of Profit and Loss, (statement of changes in equity)20 and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies and other explanatory information [in which are included the Returns for the year ended on that date audited by the branch auditors of the Company’s branches located at (location of branches)]21. In our opinion and to the best of our information and according to the explanations given to us, except for the incomplete disclosure of the information referred to in the Basis for Qualified Opinion section of our report, the aforesaid standalone financial statements give the information required by the Companies Act, 2013 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Company as at March 31, 20XX, and its profit/loss, (changes in equity)22 and its cash flows for the year ended on that date.
Basis for Qualified Opinion
As discussed in Note YY, the Company’s financing arrangements expire and amounts outstanding are payable on April 30, 20XX. The Company has been unable to conclude re-negotiations or obtain replacement financing. This situation indicates that a material uncertainty exists that may cast significant doubt on the Company’s ability to continue as a going concern. The financial statements do not adequately disclose this matter. We conducted our audit in accordance with the Standards on Auditing (SAs) specified under section 143(10) of the Companies Act, 2013. Our responsibilities under those Standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by the Institute of Chartered Accountants of India together with the ethical requirements that are relevant to our audit of the financial statements under the provisions of the 20 Where applicable. 21 Where applicable. 22 Where applicable Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. Other Information [or another title if appropriate such as “Information
Other than the Financial Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in SA 720 (Revised) – see Illustration 6 in Appendix 2 of SA 720 (Revised). The last paragraph of the other information section in Illustration 6 would be customized to describe the specific matter giving rise to the qualified opinion that also affects the other information.]
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the Basis for Qualified Opinion section, we have determined the matters described below to be the key audit matters to be communicated in our report. [Descriptions of each key audit matter in accordance with SA 701.]
Responsibilities of Management and Those Charged with Governance for
the Financial Statements [Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700 (Revised).23]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700 (Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700 (Revised).] While reporting under Section 143(3) of the Companies Act, 2013, the auditor is 23 Paragraphs 34 and 39 of SA 700 (Revised) require wording to be included in the auditor’s report for all entities in relation to going concern to describe the respective responsibilities of those responsible for the financial statements and the auditor in relation to going concern. required to suitably reword the wordings given in the Illustration in SA 700(Revised) to meet the circumstances of the audit.
(Firm’s Registration No.)
(Name of the Member signing the Audit Report) (Designation24) (Membership No.) Place of Signature: Date: 24 Partner or Proprietor, as the case may be Illustration 3 – Adverse Opinion When a Material Uncertainty Exists and is
Not Disclosed in the Financial Statements
For purposes of this illustrative auditor’s report, the following circumstances are assumed: • Audit of a complete set of financial statements of a non-corporate entity using a fair presentation framework. The audit is not a group audit (i.e., SA 600 does not apply). • The financial statements are prepared by management of the entity in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India. • The terms of the audit engagement reflect the description of management’s responsibility for the financial statements in SA 210. • The relevant ethical requirements that apply to the audit are the Code of Ethics issued by ICAI25. • Based on the audit evidence obtained, the auditor has concluded that a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, and the entity is considering bankruptcy. The financial statements omit the required disclosures relating to the material uncertainty. An adverse opinion is being expressed because the effects on the financial statements of such omission are material and pervasive. • The auditor is not required, and has otherwise not decided, to communicate key audit matters in accordance with SA 701. • Those responsible for oversight of the financial statements differ from those responsible for the preparation of the financial statements. • The auditor has no other reporting responsibilities required under local law.
INDEPENDENT AUDITOR’S REPORT
To the Partners of ABC & Associates [or Other Appropriate Addressee]
We have audited the financial statements of ABC & Associates (the entity), which comprise the balance sheet as at March 31st 20XX, and the profit and loss 25 Specify any applicable ethical requirements under the relevant laws or regulations applicable to the entity. account, (and statement of cash flows)26 for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, because of the omission of the information mentioned in the Basis for Adverse Opinion section of our report, the accompanying financial statements do not give a true and fair view of the state of affairs of the entity as at March 31st, 20XX, and of its profit/ loss (and its cash flows)27 for the year then ended in accordance with the Accounting Standards issued by the Institute of Chartered Accountants of India.
Basis for Adverse Opinion
The entity’s financing arrangements expired and the amount outstanding was payable on March 31, 20XX. The entity has been unable to conclude re- negotiations or obtain replacement financing and is considering filing for bankruptcy. This situation indicates that a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern. The financial statements do not adequately disclose this fact. We conducted our audit in accordance with the Standards on Auditing (SAs) issued by ICAI. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the entity in accordance with the Code of Ethics issued by ICAI, and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse opinion.
Responsibilities of Management and Those Charged with Governance for
the Financial Statements28 [Reporting in accordance with SA 700 (Revised) – see Illustration 4 in SA 700 (Revised).29]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 4 in SA 700 (Revised).] 26 Where applicable. 27 Where applicable. 28 Or other terms that are appropriate in the context of the legal framework of the particular jurisdiction. 29 Paragraphs 34 and 39 of SA 700 (Revised) require wording to be included in the auditor’s report for all entities in relation to going concern to describe the respective responsibilities of those responsible for the financial statements and the auditor in relation to going concern.
(Firm’s Registration No.)
(Name of the Member signing the Audit Report) (Designation30) (Membership No.) Place of Signature: Date: 30 Partner or Proprietor, as the case may be.
