Part (d) for 4 marks required a description of the impact on the audit report if the auditor believed Medimade Co was a going concern but a material uncertainty existed. In addition the scenario stated that the directors had now agreed to make going concern disclosures.

This question was unsatisfactorily answered by many candidates. Previous Examiner’s reports have stressed the need for candidates to understand audit reports.

As the auditors believed that the going concern basis was appropriate, and the directors had made disclosures then the impact on the audit report was dependent on the adequacy of the disclosures made. If adequate then an emphasis of matter paragraph would be needed, if the disclosures were not adequate then a material misstatement modification would be required.

Unfortunately, not many candidates understood the point about the adequacy of disclosures; they did suggest an emphasis of matter paragraph or material misstatement modifications, but this was without any reference to disclosures and so demonstrated a lack of understanding.

In addition a number of candidates wasted time on a discussion of whether the company was a going concern and therefore whether the break up basis should instead be used, this was despite the scenario stating that the auditor believed the company was a going concern.

Candidates must take the time to read the scenario and requirements carefully.