## SA 570: Going Concern – Disclosures & Auditor's Report

### When GC Basis is Appropriate but Material Uncertainty Exists

The auditor checks whether the financial statements:

1. Adequately disclose the principal events/conditions that may cast significant doubt on the entity's ability to continue as a going concern, AND management's plans to deal with these.

2. Clearly disclose that a material uncertainty exists and that the entity may be unable to realize its assets and discharge its liabilities in the normal course of business.

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### Three Reporting Scenarios

Scenario	Auditor's Action
GC basis is inappropriate	Adverse opinion
GC basis is appropriate but material uncertainty exists	See below (A or B)
Management unwilling to make or extend assessment	Qualified or disclaimer of opinion

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### Scenario II: Material Uncertainty Exists

#### A – Adequate Disclosure Made in Financial Statements

Express an unmodified opinion
Include a separate section in the report titled "Material Uncertainty Related to Going Concern" (MURGC) that:
Draws attention to the note in the FS disclosing the matter
States a material uncertainty exists that may cast significant doubt on the entity's ability to continue as a going concern
States the auditor's opinion is NOT modified in respect of this matter

#### B – Adequate Disclosure NOT Made in Financial Statements

Express a qualified or adverse opinion (per SA 705)
In the Basis for Qualified/Adverse Opinion section, state:
A material uncertainty exists that may cast significant doubt on ability to continue as a going concern
The financial statements do not adequately disclose this matter

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### Decision Tree

```

Is GC basis appropriate?

├── NO → Adverse Opinion

└── YES → Material uncertainty exists?

├── YES → Adequately disclosed?

│ ├── YES → Unmodified Opinion + MURGC Section

│ └── NO → Qualified/Adverse Opinion (SA 705)

└── Management unwilling to assess → Qualified/Disclaimer

```

Worked example

### Example 1

Scenario A – Adequate Disclosure: ABC Ltd has significant debt repayments due in 6 months creating material uncertainty. Management discloses this in Note 12 with a refinancing plan. The auditor is satisfied the GC basis is appropriate. Action: Express an unmodified opinion AND include a separate 'Material Uncertainty Related to Going Concern' section drawing attention to Note 12. The opinion itself is not modified.

### Example 2

Scenario B – No Disclosure: XYZ Co. faces liquidity issues creating material uncertainty, but management has NOT disclosed this in the financial statements. Action: Express a qualified or adverse opinion under SA 705. In the 'Basis for Qualified/Adverse Opinion' section, explicitly state the FS do not adequately disclose the material uncertainty.

⚠️ Common exam mistakes

Confusing 'adverse opinion' (GC basis itself is inappropriate) with 'qualified opinion' (GC basis is appropriate but disclosure is inadequate) – these are distinct scenarios.
Thinking an unmodified opinion can be issued whenever the GC basis is appropriate – adequate disclosure of the material uncertainty is also required.
Forgetting the mandatory separate 'Material Uncertainty Related to Going Concern' heading in the audit report even when the opinion is unmodified.
Using the MURGC heading for a modified opinion situation – it applies only when an unmodified opinion is given with adequate disclosure.
Misidentifying which report section to use: MURGC section for unmodified opinions; Basis for Qualified/Adverse Opinion section when disclosure is missing.

Bare-Act text Adequacy of Disclosures When a Material Uncertainty Exists · SA 570 (Revised) – Going Concern · click to expand

If the auditor concludes that the use of the going concern basis of accounting is appropriate but a material uncertainty exists, the auditor shall determine whether the financial statements adequately disclose the principal events or conditions that may cast significant doubt on the entity's ability to continue as a going concern and management's plans to deal with these events or conditions, and disclose clearly that there is a material uncertainty related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern and that it may be unable to realize its assets and discharge its liabilities in the normal course of business.

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Adequacy of Disclosures & Implications for Auditor's Report when Material Uncertainty Exists

Worked example

⚠️ Common exam mistakes