CA Deepa is the statutory auditor of SGP Textiles Ltd. for the FY 2025-26 and is in the process of finalizing the audit report. During the course of…

In accordance with SA 570 "Going Concern”, if events or conditions have been identified that may cast significant doubt on the entity's ability to continue as a going concern, the auditor shall obtain sufficient appropriate audit evidence to determine whether or not a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern by performing additional audit procedures, including consideration of mitigating factors. In the given case, SGP Textiles Ltd. is experiencing severe liquidity crisis arising from sudden shift in market demand and cancellation of its largest export order. Further, as at the Balance Sheet date, the company's current liabilities exceed its current assets and it has defaulted in repayment of certain borrowings. These conditions indicate existence of a material uncertainty that may cast significant doubt on the company's ability to continue as a going concern. However, the management has disclosed these matters in the notes to the financial statements for FY 2025-26 and has prepared the financial statements on going concern basis based on expectation that a proposed merger with a larger conglomerate will be completed and will stabilize the company's financial position. As such, considering that the going concern assumption is appropriate but a material uncertainty exists, CA Deepa should: (1) Express an unmodified opinion; and (2) Include in his audit report, a separate section under the heading "Material Uncertainty Related to Going Concern" to: (i) Draw attention to the note in the financial statements that discloses the matters; and (ii) State that these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity's ability to continue as a going concern and that the auditor's opinion is not modified in respect of the matter. Thus, CA Deepa should report the matter in her Independent Auditor's Report in the above manner in accordance with SA 570.