Summary of SA 570
|Going concern||An accounting assumption on which the financial statements of an entity are prepared that the business will go forever & forever. It will never end.|
|Primary responsibility to assess Going Concern||Management|
|Factors on which going concern is assessed||v Degree of future uncertainties;|
v Size & complexity of an entity;
v Nature & condition of the business
|Auditor’s responsibility||To obtain audit evidences whether the assessment made by an entity regarding its going concern is appropriate;|
To identify any material uncertainty about the entity’s ability to continue as going concern.
|Indicators of Going Concerns Problem||v Operating;|
|To identify whether there is an identification of any event that, may cast significant doubt on the entity’s ability to continue as a going concern||v By performing risk assessment procedures;|
v Evaluation of management’s assessment regarding the going concern of the entity;
v Obtaining audit evidence by remaining alert throughout the audit.
|Evaluation of Management’ Assessment||Factors to be Considered||v Assessment should includes all those factors that the auditor is aware during the audit;|
v Assessment Must cover at least 12 months of period from the date of financial statements;
v Same period shall covered by the auditor as covered by the management while evaluating such assessment.
|Audit Procedures When Events or Conditions Are Identified|
|Auditor’s Duty||To Perform Additional Procedures||v Identify existence of material uncertainties;|
v Ask management to make assessment; in case of non assessment by management
v Evaluate management’s future plans to mitigate the going concern problem.
|where the auditor concludes that the material uncertainty exists||Auditor’s Duty||Auditor’s Report|
|Case :-1 But the use going concern assumption is appropriate||To determine whether the financial statements :-|
v Adequately describe the principal events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern ;
v Disclose clearly that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a
going concern and,
v therefore, that it may be unable to realise its assets and discharge its liabilities in the normal course of business
|In case where adequate disclosure is made in the financial statements,||Unmodified/ Clear Opinion &Emphasis of matter paragraph in the Auditor’s Report|
|In case where adequate disclosure is not made in the financial statements,||Qualified/ Adverse opinion|
|Case 2 :- But the use of going concern assumption is not appropriate||Adverse opinion|
|In both the cases the auditor shall communicate with the TCWG that :-|
v Whether the events or conditions constitute a material uncertainty;
v Whether the use of the going concern assumption is appropriate in the preparation and presentation of the financial statements; and
v The adequacy of related disclosures in the financial statements.