Imagine you lend ₹50 lakhs to a friend's business. You'd want to know: will this business still exist next year to pay me back? That's exactly what going concern is about — the assumption that a company will continue operating for the foreseeable future (at least 12 months from the balance sheet date). SA 570 tells the auditor what to do when that assumption looks shaky.
Under SA 570, management must assess the going concern status of the entity. The auditor's job is to evaluate that assessment — not just accept it — and gather sufficient appropriate evidence. SA 570 groups warning signals into three buckets: Financial indicators (net liabilities, negative cash flows, inability to repay loans, large recurring losses), Operating indicators (loss of key management, major customer, or supplier; labour unrest; key supply shortages), and Other indicators (legal proceedings, adverse regulatory changes, uninsured catastrophes). When these red flags appear, the auditor performs extended procedures — reviewing management's cash flow forecasts, checking bank covenants, confirming post-balance-sheet events.
The reporting outcomes are the exam goldmine — learn this table cold. (1) No doubt exists → Unmodified opinion, no extra paragraph. (2) Material uncertainty exists + management has disclosed it adequately → Unmodified opinion + Emphasis of Matter (EOM) paragraph. (3) Material uncertainty exists + management has NOT disclosed it → Qualified or Adverse opinion (it's a material misstatement by omission). (4) Management is using going concern assumption but it is clearly inappropriate (e.g., company already decided to liquidate) → Adverse opinion. (5) Management refuses to extend their assessment beyond 12 months → Qualified opinion or Disclaimer of opinion. This is asked frequently as a 5–7 mark case-based question — you'll be given a scenario and asked to identify the correct report type.