Chapter 10: Review of Financial Information - Theoretical Questions

Answer:

Going Concern and Significant Uncertainties: As per SRE 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”, if, as a result of inquiries or other review procedures, a material uncertainty relating to an event or condition comes to the auditor’s attention that may cast significant doubt on the entity’s ability to continue as a going concern, and adequate disclosure is made in the interim financial information the auditor modifies the review report by adding an emphasis of matter paragraph. The auditor may have modified a prior audit or review report by adding an emphasis of matter paragraph to highlight a material uncertainty relating to an event or condition that may cast significant doubt on the entity’s ability to continue as a going concern. If a material uncertainty that casts significant doubt about the entity’s ability to continue as a going concern is not adequately disclosed in the interim financial information, the auditor should express a qualified or adverse conclusion, as appropriate. The report should include specific reference to the fact that there is such a material uncertainty. In view of the above, in the given situation, GAK Limited has compiled the interim financial information, as per the Listing agreement requirements, and submitted it to the auditors for their review. CA Reena has been assigned on the engagement to review the interim financial information of GAK Limited. CA Reena noticed that GAK Limited has not disclosed any information in the interim financial information relating to material uncertainties that casts significant doubt about the entity’s ability to continue as a going concern. Thus, the auditor should express a qualified or adverse conclusion, as appropriate. The report should include specific reference to the fact that there is such a material uncertainty. If the material uncertainty still exists and adequate disclosure is made in the interim financial information, the auditor modifies the review report on the current interim financial information by adding a paragraph to highlight the continued material uncertainty. If GAK Limited has disclosed information relating to material uncertainties, CA Reena should modify the review report by adding an emphasis of matter paragraph.