Scope of the SA: Standards on Auditing- SA 570 Going Concern deals with the auditor’s responsibilities in the audit of Financial statements relating to going concern and the implications on the auditor’s report.
Overall Objectives of the Auditor:
1. To Obtain sufficient & appropriate audit evidence regarding, and conclude on, the appropriateness of Management’s use of the Going Concern basis of accounting in the preparation of the Financial Statements.
2. To conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on entity’s ability to continue as a going concern; and
3. To report in accordance with this SA.
“However, auditor cannot be expected to guarantee the entity’s ability to continue as a going concern”.
Responsibilities of the Management:
1. To make specific assessment of the entity’s ability to continue as a going concern.
2. To make appropriate disclosure in connection with going concern in the financial statements.
Implications on the auditor’s report:
Use of Going Concern Basis of Accounting is inappropriate, The auditor shall express an “Adverse Opinion”.
Use of Going Concern basis of accounting is appropriate but a material uncertainty exists and:
Adequate disclosure of material uncertainty is made in the financial statements, Unmodified Opinion and a separate section “Material Uncertainty related to going concern”.
Use of Going Concern basis of accounting is appropriate but a material uncertainty exists and:
Adequate disclosure of material uncertainty is not made in the financial statements Qualified/ adverse opinion and mention in the basis of opinion paragraph.
Management unwilling to make or extend its assessment- Auditor shall consider the implications for the auditor’s report.
Other Important Points to be Considered:
1. The auditor shall communicate with TCWG, events or conditions identified that may cast significant doubt on the entity’s ability to continue as a Going Concern.
2. If there is delay in the approval of the financial statements and the auditor believes that such delay can be related to events or conditions relating to going concern assessment, the auditor shall perform additional procedures as well as consider the
effect on auditor’s conclusion.
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