Summary of SA 570
Going Concern
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 |
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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. |
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Indicators of Going Concerns Problem | v Operating;
v Financial; v Others |
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Auditor’s Duty | |||
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. |
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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. |
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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. |
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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
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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. |