Apurva Maheswari CA

Akash Sanghai CA


Forming an opinion on the financial statement (FS) by the auditors and

reporting is dealt by revised SA 700 (unmodified opinion). For modified

opinion revised SA 705 is required to be followed. Modified opinion

(qualified opinion) are basically given under two circumstances i.e.

(a) based on audit evidences available the FS is not free from

material misstatement or

(b) unable to obtain sufficient evidences on FS and hence auditors

are required to modify their opinion.

Further revised SA 706 (effective from 1st April 2018) states about the

additional communication by the auditors to draw the attention of users of

FS for certain issue which are of prime importance. These additional

observations by the auditors are given in the auditor’s report in the form of

“Emphasis of the matter “or “Other matters “. Such a way of reporting is

not a modified opinion and at the same time important issues are

communicated to the users of FS.

IN view of COVID-19:

ICAI has published Auditor’s Reporting Key Audit Considerations

amid COVID-19 whereby the auditors have to consider the impact of

COVID-19 for reporting purpose as regards to:

(i) Whether sufficient and appropriate audit evidence is available?

(ii) Whether the impact on the business has been assessed by the

management (cash flow, revenue / operation)?

(iii) Events occurring after year end and before issuance of report

(iv) Impact on the going concern concept due to Covid -19.

(v) Whether disclosure of impact has been made in FS by the


After assessing the above the auditors has to take call whether to issue

unmodified, modified or report with Emphasis or other matter or a clean


As per the publication issued by ICAI, it suggests issuing modified report

under the following circumstances:

(a) Failure to recognize adequate impairment of assets (whole

assets including current assets)

(b) adequate provision for obligation not made

(c) no proper disclosure of assessment of impact of covid-19 where

there is adverse impact on FS

(d) Due to lock down etc the auditors are not able to obtain

sufficient evidences so as to conclude that FS are free from

material mis statement

Where going concern has been affected (for this separate guideline has

been issued by the ICAI) the reporting would be in accordance with SA


Further the publication also suggest that : wherever the management has

made substantive disclosures of Covid-19 related issues in the FS and the

auditors are satisfied about its assessment and its adequacy then the

EMPHASIS OF MATTER paragraph may be included in the auditor’s

report in the following manner :

“Emphasis of matter – (EOM) Effects of COVID-19

We draw attention to Note X in the Financial statements, which

describes the economic and social [consequences/disruption] the

entity is facing as a result of COVID-19 which is impacting [supply

chains / consumer demand/ Financial markets/commodity prices/

personnel available for work and or being able to access offices]. Our

opinion is not modified in respect of this matter.”


Undoubtedly almost all the business has been adversely affected in some

form or other Due to COVID-19. The auditor has to issue his opinion based


(a) sufficient appropriate audit evidence

(b) whether uncorrected misstatements are material, individually or

in aggregate

(c) Further evaluation as required vide Para 12-15 of SA


It is also noticed that maximum impact would be in the current financial

year 2020-21 but the current period of April to May/June or till the date of

signing the report, the auditors would be able to assess the

recoverability/payment of assets and liabilities on 31st March 2020 as

regard to debtors , stock, advances , other receipts , creditors etc. Further

they shall be in a position to well assess the impact of Covid in FS 2020-21


In view of the above the following can be summarized:

1. A suitable note stating that the Impact of COVID -19

should be given in Notes to Accounts.

Estimation uncertainty relating to the global health

pandemic on COVID-19

In assessing the recoverability of receivables including unbilled

receivables, contract assets and contract costs, goodwill,

intangible assets, and certain investments, the Company has

considered internal and external information upto the date of

approval of these standalone financial results including credit

reports and economic forecasts. The Company has performed

sensitivity analysis on the assumptions used and based on

current indicators of future economic conditions, the Company

expects to recover the carrying amount of these assets. The

impact of the global health pandemic may be different from that

estimated as at the date of approval of these standalone financial

results and the Company will continue to closely monitor any

material changes to future economic conditions.

2. The auditors reporting be given for EOM pattern (SA 706) and

the example of such reporting are: as given above / suggested by

this guideline.

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Further Additional Notes/points worth noting are:

3. ICAI COVID-19 FAQs on Ind AS- FAQ 45


In this highly challenging scenario of COVID-19, which is

rapidly evolving day by day, there are significant uncertainties

about the future economic scenario. How does an entity

determine whether it is still a going concern? What disclosures

are required to be made in the financial statements in this



Management typically relies upon historical financial results,

known changes in the business and competitor and industry

data to provide evidence of the reasonableness of the

assumptions used in its assessment. However, given current

economic and market conditions, historical results may be

unlikely to provide a basis for future cash flows and therefore

management may need to consider additional sources of

information when evaluating the reasonableness of the

assumptions used in its assessment.

Assessment of whether the entity is a going concern is a

matter of judgment.

In case of material uncertainty, it should be pointed out

in the Auditor’s report.

Where the management concludes, given the entity’s facts and

circumstances, that no material uncertainty exists that needs

to be disclosed, but the conclusion required application of

significant judgment, then the judgment made should be

disclosed as per paragraph 122 of Ind AS 1. This talks of IND

AS however we can use it as good practice in MSME Financial

Statements as well.

4. FAQ 48

Due to COVID-19 significant impairment is recognized in

intangible assets held by the entity. Similarly, the huge loss has

been recognised due to the recognition of inventory at Net

Realisable Value, which is significantly lower than its cost. Can

these losses be treated as extraordinary and disclosed separately

in the Statement of Profit and Loss? Alternatively, can these

items be considered as Exceptional Items of Income and

Expense and disclosed separately?


Generally, items of income or expense fulfilling the abovementioned

criteria are classified as exceptional items and are

disclosed separately. From the above, it appears that all material

items are not exceptional items. In other words, exceptional

items are those items which meet the test of ‘materiality’ (size

and nature) and the test of ‘incidence’. Accordingly, these items

can be disclosed separately as ‘exceptional items’ in financial

statements if they meet the test of ‘materiality’ and ‘incidence. In

this regard, it may also be noted that Schedule III to the

Companies Act, 2013, also specifically requires a line item for

‘exceptional items’ on the face of statement of profit and loss.

Disclaimer Information in this publication is intended to provide only a

general outline of the subjects covered. It should neither be regarded as

comprehensive nor sufficient for making decisions, nor should it be used

in place of professional advice. The Authors accepts no responsibility for

loss arising from any action taken or not taken by anyone using this


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