## Events & Conditions That Cast Significant Doubt on Going Concern

Standard: SA 570 (Revised) – Going Concern

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### What is "Material Uncertainty"?

When an event or condition is identified that:

1. Has a material impact on the entity, AND

2. Whose outcome is uncertain

→ It is called a Material Uncertainty (MU).

Management must disclose such material uncertainty in the financial statements.

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### Three Categories of Events/Conditions

Category	Nature	Hints to Identify
Financial	Relates to liquidity, solvency	Impacts liquidity; signals insolvency issues
Operating	Relates to business operations	Event/condition (E or C) impacting operations or profits
Other	External environment	External factors outside the entity's control

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### Exam Tip

MCQ traps: Exam often asks you to identify which example belongs to which category (financial / operating / other).
Also asked: identify the odd one out from a list of examples.
Classification questions are high-frequency 1-mark MCQs.

Worked example

### Example 1

Classify the following: 'The entity has net current liabilities and its short-term borrowings have become due for repayment.'

→ Financial event/condition — it directly affects liquidity and signals potential insolvency.

### Example 2

Classify the following: 'Key management personnel have resigned and no suitable replacements have been found.'

→ Operating event/condition — loss of key personnel impacts the entity's ability to continue operations.

### Example 3

Classify the following: 'The entity operates in a country that has imposed new trade restrictions which may severely curtail its main revenue source.'

→ Other (External) event/condition — an external regulatory/political factor outside the entity's control.

⚠️ Common exam mistakes

Confusing 'Financial' with 'Operating' events — remember: Financial = liquidity/debt/solvency signals; Operating = the business process or profitability is affected.
Thinking that any adverse event automatically creates a Material Uncertainty — the outcome must also be UNCERTAIN for MU to exist; a certain loss is not MU.
Forgetting that Management (not the auditor) is primarily responsible for identifying and disclosing these events and conditions.

Bare-Act text Para 10 & Appendix (Examples of Events or Conditions) · SA 570 (Revised) – Going Concern, issued by ICAI · click to expand

In making its risk assessment, 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 doing so, the auditor shall determine whether management has already performed a preliminary assessment of the entity's ability to continue as a going concern... The following are examples of events or conditions that, individually or collectively, may cast significant doubt about the going concern assumption. This listing is not all-inclusive nor does the existence of one or more of the items always signify that a material uncertainty exists.

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Going Concern – Events & Conditions That Cast Significant Doubt (SA 570)

Worked example

⚠️ Common exam mistakes