Analyse and explain how the following situation would affect the audit report for the financial year ended 30 June 2020.

The client company, Rainbow Ltd, has capitalised a research and development expenditure of $2,450,000. However, to be able to realise the value of the capitalised expenditure, additional funding is required to continue the project development activities. Its uncertain that the client is able to obtain this additional funding. The auditors believe that the information is adequately disclosed by the client in the footnote of the financial report. The capitalised expenditure represents 6% of reported net profit for the 2020 financial year.