The company has serious uncertainty regarding going concern but they appropriately disclosed in a note in the financial statement. Now auditor drafting a unmodified opinion which includes Emphasis of Matter Paragraph and discuss with the management. But Management refused to accept that Emphasis of Matter paragraph and says to the auditor, we are appropriately disclosed to the matter so you should not contain any such Paragraph in the report....
what will be the auditor's action/procedure in this connection???
Hi, this is an interesting question. I am currently studying for f8 and though you are studying the advanced audit and assurance paper P7 I went through such a question while practicing ( and I still keep practicing ). Well to answer your question, I would say that external auditors perform their work in accordance with the ISAs. Concerning the specific scenario you just mentioned above, the auditors must tell management that this practice does not comply with the international standards and if they intend to publicly issue the report in this condition then the external auditors should take steps to prevent reliance on the report. This might include speaking at the Annual General Meeting (AGM) or resigning.
Question and Answer has been replied in a great manner. I would just like to add on.
It needs to be conveyed to those charged with governance (TCWG) that emphasis of matter is not a modification to the audit report and it is just an add-on to the disclosures. It also needs to added that going-concern is material by nature and so it needs to be disclosed as EOM, as per the ISA's are concerned.
emphasis of matter – auditor is required to refer to a matter which is appropriately presented or disclosed in the financial statements but, in the auditors’ judgement, is fundamental to the users’ understanding of the financial statements.Its requirement of IAS to disclose the EOM after Opnion Paragraph, Audit report is acceptable or not by management is not concern of audit, its against objectivity and integrity of auditor.it is statuory requirement to express opionin and issue report.
I also want to add here that going by the new format type audit report, this would now be disclosed separately in the MURGC (Material uncertainty regarding Going Concern) just before your KAM section.
The Auditors report is based on audit evidence obtained and is not up to management to decide what is contained in it, yes the auditor will discuss what is to be included in the report but this does not mean management decides. Management is responsible for preparation of the F/statements and may refuse to make certain adjustments picked by the auditor. This refusal to adjust will result in either a modified report or if pervasive a disclaimer.
This is the issue for not accepting the audit finding which have been appears in the paragraph but Auditor perform the audit on the basis of his knowledge and experience and sufficient documents. Every Auditor must have the sufficient documents on each observation. Before raised of observation the auditor should discuss with management. The management is not agree on any observation then the auditor should show sufficient documents and discuss withe management. Apart form discussion the auditor will also want to know from the management why this finding is not acceptable. If the sufficient reason submitted by management with devidence then auditor will consider on the finding by own judgement other wise this matter discuss with audit committee and ultimately this issue may go up to AGM for discussion. The external auditor is the representative of shareholder.