## SA 570 — Going Concern

### What SA 570 Deals With

SA 570 governs two things:

1. The auditor's responsibilities in auditing FS with respect to going concern.

2. The implications for the auditor's report depending on what the auditor concludes.

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### Objectives of the Auditor (Three-Part)

1. Obtain S&A AE regarding the appropriateness of management's use of the going concern (GC) basis of accounting in preparing the FS.

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

3. Report in accordance with SA 570.

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### Who Is Responsible for the Going Concern Assessment?

Management — not the auditor — is responsible for assessing whether the entity can continue as a going concern. This assessment involves judging inherently uncertain future outcomes, influenced by:

Degree of uncertainty associated with the outcome
Size and complexity of the entity, nature of business, external factors
Judgements based on information available at the time

> The auditor's role is to evaluate the reasonableness of management's assessment, not to make it.

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### Risk Assessment Procedures (SA 315 link)

Scenario	Auditor's Action
Management HAS performed a GC assessment	Discuss with management; determine whether they have identified events/conditions affecting GC
Management HAS NOT performed a GC assessment	Discuss with management the basis for the intended use of GC; enquire whether events/conditions exist that individually or collectively cast significant doubt

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### Implications for the Auditor's Report

#### 1. GC Basis of Accounting is INAPPROPRIATE

Management used GC basis but it should NOT have been used.

→ Adverse opinion (regardless of disclosure).

#### 2. GC Basis is APPROPRIATE but a Material Uncertainty Exists

Disclosure in FS	Auditor's Response
Adequate disclosure made	Unmodified opinion + separate section headed "Material Uncertainty Related to Going Concern"
Adequate disclosure NOT made	Qualified or Adverse opinion under SA 705; state in Basis for QO/AO section that material uncertainty exists and FS does not adequately disclose it

#### 3. Management UNWILLING to Make or Extend Its Assessment

The auditor may not be able to obtain S&A AE about management's use of GC basis.

→ Qualified opinion or Disclaimer of opinion may be appropriate (inability to obtain S&A AE).

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### Examples of Events/Conditions Casting Doubt on Going Concern

Financial indicators:

Net liability position or net current liability position
Fixed-term borrowings approaching maturity without realistic renewal prospects
Adverse key financial ratios
Substantial operating losses or significant deterioration in asset value
Arrears or discontinuation of dividends
Inability to pay creditors on due dates
Difficulty in complying with terms of loan agreements

Operating indicators:

Loss of key management without replacement
Loss of a major market, franchise, licence, or principal supplier
Labour difficulties
Shortage of important supplies
Emergence of a highly successful competitor

Other indicators:

Non-compliance with capital or other statutory requirements
Pending legal or regulatory proceedings that may result in claims the entity cannot meet
Changes in law or regulation expected to adversely affect the entity

Worked example

### Example 1

Scenario 1 — Adverse opinion (GC basis inappropriate): A company has been ordered to wind up by a court. Management still prepares FS on a going concern basis. The auditor determines that GC basis is clearly inappropriate here. → Express an adverse opinion.

### Example 2

Scenario 2 — Unmodified + Material Uncertainty Section: A company has significant recurring losses and its current liabilities exceed current assets by ₹80 crore. Management has adequately disclosed this uncertainty and its plans in Note 2 of the FS. The auditor agrees GC basis is still appropriate. → Express an unmodified opinion but include a separate section titled 'Material Uncertainty Related to Going Concern' drawing attention to Note 2.

### Example 3

Scenario 3 — Qualified opinion (inadequate disclosure): Same facts as Scenario 2, but management has not disclosed the going concern uncertainty at all in the FS. The auditor believes GC basis is still appropriate but this is a material omission. → Express a qualified opinion under SA 705, stating in the Basis for Qualified Opinion paragraph that a material uncertainty exists and the FS do not adequately disclose it.

### Example 4

Scenario 4 — Disclaimer (management refuses assessment): Management refuses to perform or extend a going concern assessment. The auditor cannot obtain S&A AE regarding whether GC basis is appropriate. The possible effect on the FS is pervasive. → Disclaimer of opinion may be appropriate.

### Example 5

Scenario 5 — Qualified (management refuses, limited scope): Same refusal, but the scope limitation's possible effects are material but not pervasive. → Qualified opinion may be appropriate.

⚠️ Common exam mistakes

Confusing the auditor's and management's roles — management assesses going concern; the auditor evaluates the reasonableness of that assessment.
Thinking that a going concern problem always leads to a modified opinion — if GC basis is appropriate AND disclosure is adequate, the opinion remains unmodified (with a separate Material Uncertainty section added).
Mixing up when to use 'Adverse' vs. 'Qualified/Disclaimer' in GC contexts — Adverse is for when GC basis is inappropriate (and you have full evidence); Qualified/Disclaimer is for when management won't cooperate.
Forgetting that inadequate disclosure of GC uncertainty can lead to either Qualified OR Adverse opinion (not just Qualified) — if effects are pervasive, it escalates to Adverse.
Assuming the 'Material Uncertainty Related to Going Concern' section is an Emphasis of Matter paragraph — SA 570 requires its own specifically titled separate section, which is distinct from a standard EOM paragraph under SA 706.

Bare-Act text SA 570 Paras 21–23 · SA 570 (Revised) — Going Concern · click to expand

If the financial statements have been prepared using the going concern basis of accounting but, in the auditor's judgement, management's use of the going concern basis of accounting in the preparation and presentation of the financial statements is inappropriate, the auditor shall express an adverse opinion. If adequate disclosure is made in the financial statements, the auditor shall express an unmodified opinion and the auditor's report shall include a separate section under the heading 'Material Uncertainty Related to Going Concern'. If adequate disclosure of the material uncertainty is not made in the financial statements, the auditor shall express a qualified opinion or adverse opinion, as appropriate, in accordance with SA 705 (Revised).

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Auditor's Responsibilities, Risk Assessment, and Reporting Implications under Going Concern

Worked example

⚠️ Common exam mistakes