## SA 570 – Going Concern

### What Is the Going Concern Basis of Accounting?

An entity prepares financial statements on the going concern basis when it can realise its assets and discharge its liabilities in the normal course of business.

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Can entity realise assets & discharge liabilities?

YES ↓ NO ↓

Going Concern Basis Liquidation Basis of Accounting

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### Management's Responsibility

It is Management's responsibility to assess whether the entity is a going concern.

This assessment:

Is made at a particular point of time
Involves judgement about the outcome of future events and conditions

Factors affecting Management's Going Concern Judgement:

Factor	Explanation
Degree of Uncertainty	Higher uncertainty = harder to predict future outcomes
Size & Complexity of Entity	Larger/complex entities have more variables to assess
Nature of Business & External Factors	Industry conditions, regulatory environment, economic factors
Point-in-time limitation	Subsequent events may differ significantly from the assessment made earlier

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### Auditor's Objectives (SA 570)

1. Obtain SAAE about the appropriateness of the going concern basis of accounting used by the entity.

2. Conclude whether a material uncertainty exists relating to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern.

3. Report as per SA 570 requirements.

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### Auditor's Risk Assessment Procedures (RAP)

Auditor applies RAP to identify whether management has performed a preliminary assessment of going concern.

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Has Management done preliminary GC assessment?

YES ↓ NO ↓

Inquire: Inquire: What is the basis for the

• Events/conditions identified intended use of going concern accounting?

• Management's possible Request management to perform the

action plan to deal with assessment.

events/conditions Inquire whether events/conditions exist.

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Professional Scepticism: The auditor must maintain professional scepticism throughout the audit regarding going concern indicators.

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### Key Terminology

Term	Meaning
Going Concern	Entity will continue operations for the foreseeable future
Material Uncertainty	Uncertainty significant enough to require disclosure; entity may not be a going concern
Significant Doubt	A condition or event that raises serious questions about the entity's ability to continue as a going concern
Liquidation Basis	Accounting where assets are measured at liquidation/realisation values, not historical cost

Worked example

### Example 1

Example – Identifying Going Concern Events: During the audit of Sunrise Ltd. for FY 2024-25, the auditor notes: (1) Net worth is eroded (accumulated losses exceed paid-up capital), (2) The company has defaulted on loan repayments for 3 consecutive quarters, (3) A major customer (40% of revenue) has terminated the contract. These are events/conditions that cast significant doubt on going concern. Auditor inquires about management's action plan (e.g., capital infusion, new contracts) and evaluates whether the plan can realistically mitigate the doubt.

### Example 2

Example – Management did NOT do GC Assessment: Auditor finds that management of Beta Ltd. prepared the FS on a going concern basis without performing any formal assessment. The auditor requests management to carry out the assessment, documents the basis for going concern assumption, and evaluates whether a material uncertainty needs to be disclosed in the financial statements.

⚠️ Common exam mistakes

Confusing management's responsibility (to assess going concern) with the auditor's responsibility (to obtain evidence and conclude on appropriateness of that assessment).
Thinking that if a going concern doubt exists, the auditor automatically issues an adverse opinion – the correct outcome depends on whether there is adequate disclosure of material uncertainty (which leads to an unmodified opinion with EOM paragraph) or no disclosure (which leads to a modified opinion).
Forgetting that going concern assessment is inherently forward-looking and judgement-based; the auditor must maintain professional scepticism, not merely accept management's optimistic projections.
Ignoring that going concern assessment is point-in-time – subsequent events may invalidate an earlier assessment.

Bare-Act text SA 570, Para 9 – Objectives · SA 570 (Revised) – Going Concern (ICAI) · click to expand

The objectives of the auditor are: (a) To obtain sufficient appropriate audit evidence about the appropriateness of management's use of the going concern basis of accounting in the preparation of the financial statements; (b) To conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern; and (c) To report in accordance with this SA.

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