## SA 570: Auditor's Procedures on Going Concern

### Step 1 — Risk Assessment: Has Management Done Its Assessment?

Scenario	Auditor's Action
Management has performed an assessment	Discuss it; determine whether management identified events/conditions and their plans to address them
Management has not yet performed an assessment	Discuss the basis for using going concern; inquire whether events/conditions exist that may cast doubt

> Throughout the entire audit, the auditor remains alert for evidence of going concern indicators.

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### Step 2 — Evaluating Management's Assessment

1. The auditor evaluates the process, the assumptions, and the feasibility of management's plans.

2. It is NOT the auditor's responsibility to rectify management's lack of analysis.

3. The auditor must cover at least the same period as management.

4. If management's assessment covers less than 12 months from the FS date → auditor must request management to extend it to at least 12 months.

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### Step 3 — Additional Procedures When Indicators Are Identified

When events or conditions have been identified, the auditor must obtain SAAE to determine whether a material uncertainty exists.

Mnemonic for additional procedures: CID BRIDES

Letter	Procedure
C	Analyse and discuss cash flow, profit, and other relevant forecasts with management
I	Analyse and discuss the entity's latest available interim financial statements
D	Read terms of debentures and loan agreements; determine whether any have been breached
B	Confirm existence, terms, and adequacy of borrowing facilities
R	Obtain and review regulatory actions reports
I	Inquire of the entity's legal counsel regarding litigation, claims, and financial implications
D	Determine the adequacy of support for planned disposals of assets
E	Confirm existence, legality, and enforceability of financial support arrangements (related/third parties); assess their financial ability to provide funds
S	Perform subsequent events procedures to identify events that mitigate or affect going concern

Also: Request written representations from management (and TCWG where appropriate) on their future plans and feasibility.

Also: When evaluating a cash flow forecast:

Evaluate reliability of underlying data.
Determine whether assumptions are adequately supported.

Worked example

### Example 1

Example – 12-Month Extension Requirement: Management of a retailer assesses going concern only up to September (9 months from its 31 December year-end). The auditor identifies this gap and formally requests management to extend the assessment to 31 December of the following year (12 months). Only then does the auditor evaluate the extended assessment.

### Example 2

Example – CID BRIDES in Practice: The auditor identifies a net current liability position (financial indicator). Additional procedures applied: (C) Review 18-month cash flow forecast and challenge assumptions on revenue growth. (D) Read the term loan agreement — discovers a debt covenant requiring DSCR > 1.2×; current DSCR is 0.95×, meaning the covenant is already breached. (B) Seek confirmation from the bank that the overdraft facility of ₹10 crore remains available. (I) Inquire of legal counsel on a pending tax dispute. (E) Review a comfort letter from the parent company and assess whether the parent has the financial capacity to honour it. Based on these, the auditor concludes a material uncertainty exists.

### Example 3

Example – Written Representations: After all procedures, the auditor requests a written representation from management confirming: their assessment period, the specific mitigating plans (e.g., planned asset sale, new equity raise), and their belief that those plans are feasible. This representation does not substitute for audit evidence but supports the auditor's conclusion.

⚠️ Common exam mistakes

Stopping after risk assessment without performing the additional CID BRIDES procedures when going concern indicators have been identified.
Accepting management's cash flow forecast at face value without evaluating the reliability of underlying data and the reasonableness of assumptions.
Failing to request a 12-month assessment extension when management's period is shorter — this is a mandatory requirement, not optional.
Treating written representations as sufficient audit evidence on their own — they supplement, not replace, other procedures.
Confusing 'evaluating management's assessment' with 'performing management's assessment' — the auditor evaluates; the duty to prepare the assessment rests with management.
Ignoring mitigating factors when events/conditions are identified — additional procedures must include consideration of factors that may offset the indicators.

Bare-Act text Q6 – Additional Audit Procedures When Events or Conditions Are Identified · SA 570 – Going Concern · click to expand

If events or conditions have been identified that may cast significant doubt on the entity's ability to continue as a going concern, the auditor shall obtain sufficient appropriate audit evidence to determine whether or not 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 through performing additional audit procedures, including consideration of mitigating factors.

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Risk Assessment, Evaluating Management's Assessment & Additional Audit Procedures

Worked example

⚠️ Common exam mistakes