## 700 Series: Audit Report When Going Concern Disclosure Is Inadequate

### The Scenario

The auditor concludes that the going concern basis of accounting is appropriate, but identifies a material uncertainty about the entity's future viability. In such cases, the financial statements must make adequate disclosure of that material uncertainty.

### When Disclosure Is Inadequate — Reporting Obligations

If the entity does not make adequate disclosure of the material uncertainty in the financial statements, the auditor must:

Step 1: Express a Modified Opinion

Issue either:

A qualified opinion — if the matter is material but not pervasive, or
An adverse opinion — if the matter is pervasive

as per SA 705.

Step 2: Explain in the Basis Section

In the "Basis for Qualified (Adverse) Opinion" section of the auditor's report, explicitly state:

A material uncertainty exists that may cast significant doubt on the entity's ability to continue as a going concern, and
The financial statements do not adequately disclose this matter

### Key Contrast

Situation	Auditor's Response
Adequate disclosure of material uncertainty	Unmodified opinion + MURGC emphasis paragraph
Inadequate disclosure of material uncertainty	Modified opinion (qualified/adverse) + explanation in Basis section
Going concern basis itself is inappropriate	Adverse opinion

> MURGC = Material Uncertainty Related to Going Concern paragraph

Worked example

### Example 1

Boom Payments Bank (RTP Jan 2025): The banking regulator imposed restrictions on Boom Payments Bank due to KYC non-compliance and money laundering violations. There is a material uncertainty about the bank's going concern status. The auditor concluded the going concern basis is appropriate for 2023-24, but the financial statements do not adequately disclose the material uncertainty. Result: (1) Express a qualified or adverse opinion as appropriate under SA 705 — the choice depends on whether the effect of the non-disclosure is material but not pervasive (qualified) or pervasive (adverse). (2) In the 'Basis for Qualified (Adverse) Opinion' section, state that a material uncertainty exists casting significant doubt on the bank's ability to continue as a going concern, and that the financial statements do not adequately disclose this matter.

⚠️ Common exam mistakes

Issuing an unmodified opinion with just an emphasis paragraph when going concern disclosure is inadequate — inadequate disclosure requires a modified opinion under SA 705
Confusing the MURGC emphasis paragraph (used when disclosure IS adequate) with the Basis for Modified Opinion section (used when disclosure is NOT adequate)
Placing the going concern explanation in a wrong section of the audit report — when a modified opinion is issued, the explanation belongs in the Basis for Qualified/Adverse Opinion section
Automatically issuing an adverse opinion for all inadequate going concern disclosures — the choice between qualified and adverse depends on whether the effect is material but not pervasive, or pervasive

Bare-Act text Going Concern — Implications for the Auditor's Report (Inadequate Disclosure) · SA 570 – Going Concern; SA 705 – Modifications to the Opinion in the Independent Auditor's Report · click to expand

If adequate disclosure about the material uncertainty is not made in the financial statements, the auditor shall: (i) Express a qualified opinion or adverse opinion, as appropriate, in accordance with SA 705. (ii) In the Basis for Qualified (Adverse) Opinion section of the auditor's report, state that a material uncertainty exists that may cast significant doubt on the entity's ability to continue as a going concern and that the financial statements do not adequately disclose this matter.

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SA 570 / SA 705 — Audit Report Implications When Going Concern Disclosure Is Inadequate

Worked example

⚠️ Common exam mistakes