Question Tag: Modifications

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  • 5 Marks

AA – May 2016 – L2 – Q4b – Completion Procedures and Reporting

This question explains the possible audit reports that can be issued when the going concern status of a company is questioned.

(b) Describe the possible audit reports that can be issued where the going concern status of a company is called into question; your answer should describe the circumstances in which they can be issued. (5 marks)

  • Unmodified Opinion with Emphasis of Matter Paragraph:
    • If the going concern assumption is appropriate but a material uncertainty exists, and the company has adequately disclosed the uncertainty in the financial statements, the auditor issues an unmodified opinion. However, an emphasis of matter paragraph is included in the audit report to draw attention to the disclosure of the material uncertainty related to going concern.
  • Qualified Opinion:
    • If a material uncertainty exists, but the company has not adequately disclosed this uncertainty in the financial statements, the auditor will issue a qualified opinion. This modification is issued because the financial statements are materially misstated due to insufficient disclosure regarding the going concern.
  • Adverse Opinion:
    • If the auditor concludes that the company will not be able to continue as a going concern and the financial statements have been inappropriately prepared on a going concern basis, the auditor issues an adverse opinion. This happens when the financial statements are fundamentally misstated because they do not reflect the company’s actual financial position.
  • Disclaimer of Opinion:
    • If the auditor is unable to obtain sufficient appropriate evidence regarding the company’s going concern status due to limitations in the scope of the audit, the auditor issues a disclaimer of opinion. This occurs when the auditor cannot form an opinion on the financial statements due to the lack of reliable evidence.
  • Modified Opinion for Lack of Extended Assessment:
    • If management refuses to extend its going concern assessment to cover at least twelve months from the reporting date, the auditor may issue a modified opinion on the grounds of insufficient evidence. This would typically be a qualified opinion or disclaimer of opinion, depending on the extent of the limitation.
  • 4 Marks

BCL – Nov 2016 – L1 – Q3a – Contract Law

List the modifications made to the doctrine of consideration by the Contracts Act, 1960 (Act 25).

The Contracts Act, 1960, Act 25, has modified the common law doctrine of consideration. List FOUR of the modifications.

Modifications to the Doctrine of Consideration:

  1. A promisor who has promised to keep his offer open for a specified period is not at liberty to withdraw the offer before the expiration of that period on the ground that the promisee has not provided any consideration for the offer.
  2. A creditor who promises, without receiving consideration, to forego the whole or part of a debt or to waive the performance of some other contractual or legal obligation can be held to his promise. The promise of waiver shall not be invalid as a contract by reason only of the absence of any consideration for it.
  3. If one is legally bound to perform a legal duty, the performance, or promise to perform that act may be sufficient consideration.
  4. It is possible for consideration to be supplied by someone other than the promisee. The beneficiary need not be the promisee. (Section 10 of the Contracts Act).
    (4 points at 1 mark each = 4 marks)

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