Objective: ISA 570 Going Concern

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ISA 570

GOING CONCERN

OBJECTIVE

SCOPE  To obtain sufficient appropriate audit evidence regarding use of the


going concern assumption by management in the preparation of
Auditor’s responsibilities in the audit the financial statements;
of financial statements relating to  To conclude, based on the audit evidence obtained, whether a
management’s use of the going material uncertainty exists related to events or conditions that may
concern assumption cast significant doubt on the entity’s ability to continue as a going
concern; and
 To determine the implications for the auditor’s report.

WHAT IS GOING CONCERN ASSUMPTION

Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future. When the use
of the going concern assumption is appropriate, assets and liabilities are recorded on the basis that the entity will be able to
realize / disposed it in the normal course of business.

RESPONSIBLITIES

MANAGEMENT
AUDITOR
Management’s assessment of the entity’s ability The auditor’s responsibility is to obtain sufficient
to continue as a going concern involves making appropriate audit evidence about the appropriateness of
a judgment. The following factors are relevant assumption used by management in the preparation of
to that judgment: the FS and to conclude whether material uncertainty exist
• The degree of uncertainty associated with the or not
outcome of an event or condition.
• The size and complexity of the entity, the
nature and condition of its business and the
degree to which it is affected by external
factors.
• Any judgment about the future is based on
information available. Subsequent events may
result in outcomes that are inconsistent with
judgments.
REQUIREMENT

Risk Assessment Procedures and Related Activities


When performing risk assessment procedures as required by ISA 315 (Revised),the auditor shall consider
whether there are events or conditions that may cast significant doubt on the entity’s ability to continue
as a going concern. In so doing,

If such an assessment has been performed or not

YES NO

The auditor shall discuss the assessment with The auditor shall discuss with management
management and determine whether management the basis for intended use of the going
has identified events or conditions that may cast concern assumption, and inquire about
significant doubt on the entity’s ability to continue events or conditions
as a going concern, if so, management’s plans to
address them.

!!!The auditor shall remain alert through the audit for audit evidence of events or conditions.

Period beyond Management Assessment

Inquire Request Other than inquiry


management of its Remain alert for management to auditor does not
events or condition consider that have responsibility
knowledge of beyond
events or condition to perform any
events or condition management other procedures on
beyond the period assessment. if it is significant period beyond
of management management
assessment. assessment.
WHAT IS EVENTS AND CONDITIONS

FINANCIALS

Fixed-term borrowings Negative operating cash


Net liability or net approaching maturity without Indications of flows indicated by
current liability position. realistic prospects of renewal or withdrawal of financial historical or prospective
repayment; or excessive reliance support by creditors. financial statements.
on short-term borrowings to
finance long-term assets.

Substantial operating losses


Adverse key financial or significant deterioration in Arrears or Inability to pay creditors
the value of assets used to discontinuance of on due dates.
ratios.
generate cash flows. dividends.

Inability to comply with Change from credit to cash-on- Inability to obtain financing for essential
the terms of loan delivery transactions with new product development or other
agreements. suppliers. essential investments.

OPERATING

Loss of a major
Management intentions market, key Labor difficulties.
Loss of key management
to liquidate the entity or customer(s),
without replacement.
to cease operations. franchise, license, or
principal supplier(s).

Shortages of important Emergence of a highly


supplies. successful competitor.

OTHERS

Pending legal or regulatory Changes in law or Uninsured or


Non-compliance with proceedings against the regulation or underinsured
capital or other statutory entity. government policy catastrophes when they
requirements. expected to occur.
adversely affect the
entity.
Additional Audit Procedures when events or condition are identified

Analyzing and discussing the cash flow, profit and other relevant forecasts with the management.
Analyzing and discussing latest available interim financial statements
Reading the terms of debentures and loan agreements
Reading minutes of the meetings of shareholders, TCWG and relevant committees for reference to financing difficulties.
Inquiring entity’s legal counsel regarding existence of litigation and claims and reasonableness of management’s
assessments of their outcome and estimate of their financial implications.
Performing audit procedures regarding subsequent events
Confirming existence, terms and adequacy of the borrowing facilities
Obtaining and reviewing reports of regulatory actions.
 Requesting written representations from management and those charged with governance regarding their plans for the future
actions and feasibility of those plans.

Communication with Those Charged with Governance


Auditor shall communicate with those charged with governance about the events or conditions identified
that may cast significant doubt on going concern. Such communication shall include
Whether events or conditions constitute a material uncertainty;
Whether use of going concern basis is appropriate
Adequacy of related disclosures in the financial statements
Implications for the auditor’s report.

Significant Delay in the Approval of F/S

If there is significant delay in approval of the financial statements by management or those charged with
governance after the date of financial statements, auditor shall inquire the reasons for the delay. If the
auditor believes that the delay could be related to events or conditions relating to the going concern
assessment, the auditor shall perform necessary additional audit procedures.
Event or condition

Going concern assessment No


Yes Q or DC

Going concern assumption appropriate

Yes No

Alternative basis + adequate disclosure

Material uncertainty exist

Yes No Yes No

Clean Q or adverse

Material uncertainty disclosed

Yes No

Clean+ M M+P
MURTGC Q Adverse
Report

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