20+ Frequently Asked Questions on Going Concern under SA 570

This SA deals with the auditor’s responsibilities in the audit of financial statements relating to going concern and the implications for the auditor’s report.

Under the going concern basis, financial statements are prepared on the assumption that the entity will continue operations in the foreseeable future. This basis is used unless management intends or is forced to liquidate or cease operations. While general purpose financial statements typically follow this approach, special purpose statements may not. When applied, assets and liabilities are measured assuming they will be realized and settled in the normal course of business.

(a) To obtain sufficient and appropriate audit evidence on the appropriateness of management’s use of the going concern basis of accounting in preparing financial statements;

(b) To conclude, based on audit evidence, whether a material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern; and

(c) To report in accordance with the relevant SA

Management is responsible for assessing the entity’s ability to continue as a going concern. Their responsibility may be explicitly required by financial reporting frameworks, laws, or regulations. Even when no explicit requirement exists, management must still assess going concern if it is a fundamental principle of financial statement preparation. This involves making judgments about uncertain future outcomes and conditions at the time of assessment.

Management shall consider the degree of uncertainty about future events, the size and complexity of the entity, the nature and condition of its business, the impact of external factors, and the fact that judgments are based on information available at the time, even though later events may differ from those judgments.