SA 570 Going Concern
SA 570(Revised)*
Going Concern
(Effective for audits of financial statements for periods
beginning on or after April 1, 2017)
Contents
Paragraph(s)
Introduction
Scope of this SA........................................................................................ 1
Going Concern Basis of Accounting ......................................................... 2
Responsibility for Assessment of the Entity’s Ability to
Continue as a Going Concern............................................................... 3−7
Effective Date ............................................................................................ 8
Objectives ................................................................................................ 9
Requirements
Risk Assessment Procedures and Related Activities ....................... 10−11
Evaluating Management’s Assessment ............................................ 12−14
Period beyond Management’s Assessment ........................................... 15
Additional Audit Procedures When Events or
Conditions Are Identified ......................................................................... 16
Auditor Conclusions .......................................................................... 17−20
Implications for the Auditor’s Report ................................................. 21−24
Communication with Those Charged with Governance .......................... 25
Significant Delay in the Approval of Financial Statements ..................... 26
Application and Other Explanatory Material
Scope of this SA...................................................................................... A1
Going Concern Basis of Accounting ....................................................... A2
Risk Assessment Procedures and Related Activities ...................... A3−A7
Evaluating Management’s Assessment ......................................... A8−A13
* Issued in May 2016.
Period beyond Management’s Assessment ................................ A14−A15
Additional Audit Procedures When Events or
Conditions Are Identified .............................................................. A16−A20
Auditor Conclusions ..................................................................... A21−A25
Implications for the Auditor’s Report ............................................ A26−A35
Appendix: Illustrations of Auditor’s Reports Relating to Going Concern
Standard on Auditing (SA) 570 (Revised), “Going Concern”, should be
read in the context of the “Preface to the Standards on Quality Control,
Auditing, Review, Other Assurance and Related Services”, which sets
out the authority of SAs and SA 200, “Overall Objectives of the
Independent Auditor and the Conduct of an Audit in Accordance with
Standards on Auditing”.
SA 570(Revised) 2
Introduction
Scope of this SA
1. This Standard on Auditing (SA) deals with the auditor’s responsibilities in
the audit of financial statements relating to going concern and the implications for
the auditor’s report. (Ref: Para. A1)
Going Concern Basis of Accounting
2. Under the going concern basis of accounting, the financial statements are
prepared on the assumption that the entity is a going concern and will continue
its operations for the foreseeable future. General purpose financial statements
are prepared using the going concern basis of accounting, unless management
either intends to liquidate the entity or to cease operations, or has no realistic
alternative but to do so. Special purpose financial statements may or may not be
prepared in accordance with a financial reporting framework for which the going
concern basis of accounting is relevant (e.g., the going concern basis of
accounting is not relevant for some financial statements prepared on a tax
basis). When the use of the going concern basis of accounting is appropriate,
assets and liabilities are recorded on the basis that the entity will be able to
realize its assets and discharge its liabilities in the normal course of business.
(Ref: Para. A2)
Responsibility for Assessment of the Entity’s Ability to Continue as a
Going Concern
3. Some financial reporting frameworks contain an explicit requirement for
management to make a specific assessment of the entity’s ability to continue as
a going concern, and standards regarding matters to be considered and
disclosures to be made in connection with going concern. The detailed
requirements regarding management’s responsibility to assess the entity’s ability
to continue as a going concern and related financial statement disclosures may
also be set out in law or regulation.
4. In other financial reporting frameworks, there may be no explicit
requirement for management to make a specific assessment of the entity’s ability
to continue as a going concern. Nevertheless, where the going concern basis of
accounting is a fundamental principle in the preparation of financial statements
as discussed in paragraph 2, the preparation of the financial statements requires
management to assess the entity’s ability to continue as a going concern even if
the financial reporting framework does not include an explicit requirement to do
so.
5. Management’s assessment of the entity’s ability to continue as a going
concern involves making a judgment, at a particular point in time, about
3 SA 570(Revised)
inherently uncertain future outcomes of events or conditions. The following
factors are relevant to that judgment:
The degree of uncertainty associated with the outcome of an event or
condition increases significantly the further into the future an event or
condition or the outcome occurs. For that reason, most financial reporting
frameworks that require an explicit management assessment specify the
period for which management is required to take into account all available
information.
The size and complexity of the entity, the nature and condition of its
business and the degree to which it is affected by external factors affect the
judgment regarding the outcome of events or conditions.
Any judgment about the future is based on information available at the time
at which the judgment is made. Subsequent events may result in outcomes
that are inconsistent with judgments that were reasonable at the time they
were made.
Responsibilities of the Auditor
6. The auditor’s responsibilities are to obtain sufficient appropriate audit
evidence regarding, and conclude on, the appropriateness of management’s use
of the going concern basis of accounting in the preparation of the financial
statements, and to conclude, based on the audit evidence obtained, whether a
material uncertainty exists about the entity’s ability to continue as a going
concern. These responsibilities exist even if the financial reporting framework
used in the preparation of the financial statements does not include an explicit
requirement for management to make a specific assessment of the entity’s ability
to continue as a going concern.
7. However, as described in SA 200,1 the potential effects of inherent
limitations on the auditor’s ability to detect material misstatements are greater for
future events or conditions that may cause an entity to cease to continue as a
going concern. The auditor cannot predict such future events or conditions.
Accordingly, the absence of any reference to a material uncertainty about the
entity’s ability to continue as a going concern in an auditor’s report cannot be
viewed as a guarantee as to the entity’s ability to continue as a going concern.
Effective Date
8. This SA is effective for audits of financial statements for periods beginning
on or after April 1, 2017.
1 SA 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in
Accordance with Standards on Auditing, paragraphs A51–A52.
SA 570(Revised) 4
Objectives
9. The objectives of the auditor are:
(a) To obtain sufficient appropriate audit evidence regarding, and conclude on,
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.
Requirements
Risk Assessment Procedures and Related Activities
10. When performing risk assessment procedures as required by SA 315,2 the
auditor shall consider whether events or conditions exist that may cast significant
doubt on the entity’s ability to continue as a going concern. In so doing, the
auditor shall determine whether management has already performed a
preliminary assessment of the entity’s ability to continue as a going concern, and:
(Ref: Para. A3–A6)
(a) If such an assessment has been performed, the auditor shall discuss the
assessment with management and determine whether management has
identified events or conditions that, individually or collectively, may cast
significant doubt on the entity’s ability to continue as a going concern and, if
so, management’s plans to address them; or
(b) If such an assessment has not yet been performed, the auditor shall
discuss with management the basis for the intended use of the going
concern basis of accounting, and inquire of management whether events or
conditions exist that, individually or collectively, may cast significant doubt
on the entity’s ability to continue as a going concern.
11. The auditor shall remain alert throughout the audit for audit evidence of
events or conditions that may cast significant doubt on the entity’s ability to
continue as a going concern. (Ref: Para. A7)
Evaluating Management’s Assessment
12. The auditor shall evaluate management’s assessment of the entity’s ability
to continue as a going concern. (Ref: Para. A8–A10, A12–A13)
2 SA 315, Identifying and Assessing the Risks of Material Misstatement through Understanding the
Entity and Its Environment, paragraph 5.
5 SA 570(Revised)
13. In evaluating management’s assessment of the entity’s ability to continue
as a going concern, the auditor shall cover the same period as that used by
management to make its assessment as required by the applicable financial
reporting framework, or by law or regulation if it specifies a longer period. If
management’s assessment of the entity’s ability to continue as a going concern
covers less than twelve months from the date of the financial statements as
defined in SA 560,3 the auditor shall request management to extend its
assessment period to at least twelve months from that date. (Ref: Para. A11–
A13)
14. In evaluating management’s assessment, the auditor shall consider
whether management’s assessment includes all relevant information of which the
auditor is aware as a result of the audit.
Period beyond Management’s Assessment
15. The auditor shall inquire of management as to its knowledge of events or
conditions beyond the period of management’s assessment that may cast
significant doubt on the entity’s ability to continue as a going concern. (Ref: Para.
A14–A15)
Additional Audit Procedures When Events or Conditions Are
Identified
16. 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 (hereinafter referred to as
“material uncertainty”) through performing additional audit procedures, including
consideration of mitigating factors. These procedures shall include: (Ref: Para.
A16)
(a) Where management has not yet performed an assessment of the entity’s
ability to continue as a going concern, requesting management to make its
assessment.
(b) Evaluating management’s plans for future actions in relation to its going
concern assessment, whether the outcome of these plans is likely to
improve the situation and whether management’s plans are feasible in the
circumstances. (Ref: Para. A17)
(c) Where the entity has prepared a cash flow forecast, and analysis of the
3 SA 560, Subsequent Events, paragraph 5(a)
SA 570(Revised) 6
forecast is a significant factor in considering the future outcome of events or
conditions in the evaluation of management’s plans for future actions: (Ref:
Para. A18–A19)
(i) Evaluating the reliability of the underlying data generated to prepare
the forecast; and
(ii) Determining whether there is adequate support for the assumptions
underlying the forecast.
(d) Considering whether any additional facts or information have become
available since the date on which management made its assessment.
(e) Requesting written representations from management and, where
appropriate, those charged with governance, regarding their plans for future
actions and the feasibility of these plans. (Ref: Para. A20)
Auditor Conclusions
17. The auditor shall evaluate whether sufficient appropriate audit evidence has
been obtained regarding, and shall conclude on, the appropriateness of
management’s use of the going concern basis of accounting in the preparation of
the financial statements.
18. Based on the audit evidence obtained, the auditor shall conclude whether,
in the auditor’s judgment, a material uncertainty exists related to events or
conditions that, individually or collectively, may cast significant doubt on the
entity’s ability to continue as a going concern. A material uncertainty exists when
the magnitude of its potential impact and likelihood of occurrence is such that, in
the auditor’s judgment, appropriate disclosure of the nature and implications of
the uncertainty is necessary for: (Ref: Para. A21−A22)
(a) In the case of a fair presentation financial reporting framework, the fair
presentation of the financial statements, or
(b) In the case of a compliance framework, the financial statements not to be
misleading.
Adequacy of Disclosures When Events or Conditions Have Been Identified
and a Material Uncertainty Exists
19. If the auditor concludes that management’s use of the going concern basis
of accounting is appropriate in the circumstances but a material uncertainty
exists, the auditor shall determine whether the financial statements: (Ref: Para.
A22‒A23)
(a) Adequately disclose the principal events or conditions that may cast
7 SA 570(Revised)
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
(b) 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, therefore, that it may be unable to realize its
assets and discharge its liabilities in the normal course of business.
Adequacy of Disclosures When Events or Conditions Have Been Identified
but No Material Uncertainty Exists
20. If events or conditions have been identified that may cast significant doubt
on the entity’s ability to continue as a going concern but, based on the audit
evidence obtained the auditor concludes that no material uncertainty exists, the
auditor shall evaluate whether, in view of the requirements of the applicable
financial reporting framework, the financial statements provide adequate
disclosures about these events or conditions. (Ref: Para. A24–A25)
Implications for the Auditor’s Report
Use of Going Concern Basis of Accounting is Inappropriate
21. If the financial statements have been prepared using the going concern
basis of accounting but, in the auditor’s judgment, management’s use of the
going concern basis of accounting in the preparation of the financial statements
is inappropriate, the auditor shall express an adverse opinion. (Ref: Para. A26–
A27)
Use of Going Concern Basis of Accounting is Appropriate but a Material
Uncertainty Exists
Adequate Disclosure of a Material Uncertainty is Made in the Financial
Statements
22. If adequate disclosure about the material uncertainty 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” to: (Ref: Para. A28–A31, A34)
(a) Draw attention to the note in the financial statements that discloses the
matters set out in paragraph 19; and
(b) State that these events or conditions indicate that a material uncertainty
exists that may cast significant doubt on the entity’s ability to continue as a
going concern and that the auditor’s opinion is not modified in respect of
the matter.
SA 570(Revised) 8
Adequate Disclosure of a Material Uncertainty is Not Made in the Financial
Statements
23. If adequate disclosure about the material uncertainty is not made in the
financial statements, the auditor shall: (Ref: Para. A32–A34)
(a) Express a qualified opinion or adverse opinion, as appropriate, in
accordance with SA 705 (Revised)4; and
(b) In the Basis for Qualified (Adverse) Opinion section of the auditor’s report,
state that a material uncertainty exists that may cast significant doubt on
the entity’s ability to continue as a going concern and that the financial
statements do not adequately disclose this matter.
Management Unwilling to Make or Extend Its Assessment
24. If management is unwilling to make or extend its assessment when
requested to do so by the auditor, the auditor shall consider the implications for
the auditor’s report. (Ref: Para. A35)
Communication with Those Charged with Governance
25. Unless all those charged with governance are involved in managing the
entity,5 the auditor shall communicate with those charged with governance
events or conditions identified that may cast significant doubt on the entity’s
ability to continue as a going concern. Such communication with those charged
with governance shall include the following:
(a) Whether the events or conditions constitute a material uncertainty;
(b) Whether management’s use of the going concern basis of accounting is
appropriate in the preparation of the financial statements;
(c) The adequacy of related disclosures in the financial statements; and
(d) Where applicable, the implications for the auditor’s report.
Significant Delay in the Approval of Financial Statements
26. If there is significant delay in the approval of the financial statements by
management or those charged with governance after the date of the financial
statements, the auditor shall inquire as to the reasons for the delay. If the auditor
believes that the delay could be related to events or conditions relating to the
going concern assessment, the auditor shall perform those additional audit
procedures necessary, as described in paragraph 16, as well as consider the
4 SA 705 (Revised), Modifications to the Opinion in the Independent Auditor’s Report.
5 SA 260 (Revised), Communication with Those Charged with Governance, paragraph 13.
9 SA 570(Revised)
effect on the auditor’s conclusion regarding the existence of a material
uncertainty, as described in paragraph 18.
***
Application and Other Explanatory Material
Scope of this SA (Ref: Para 1)
A1. SA 7016 deals with the auditor’s responsibility to communicate key audit
matters in the auditor’s report. That SA acknowledges that, when SA 701
applies, matters relating to going concern may be determined to be key audit
matters, and explains that a material uncertainty related to events or conditions
that may cast significant doubt on the entity’s ability to continue as a going
concern is, by its nature, a key audit matter.7
Going Concern Basis of Accounting (Ref: Para. 2)
Considerations Specific to Public Sector Entities
A2. Management’s use of the going concern basis of accounting is also
relevant to public sector entities. Going concern risks may arise, but are not
limited to, situations where public sector entities operate on a for-profit basis,
where government support may be reduced or withdrawn, or in the case of
privatization. Events or conditions that may cast significant doubt on an entity’s
ability to continue as a going concern in the public sector may include situations
where the public sector entity lacks funding for its continued existence or when
policy decisions are made that affect the services provided by the public sector
entity.
Risk Assessment Procedures and Related Activities
Events or Conditions That May Cast Significant Doubt on the Entity’s
Ability to Continue as a Going Concern (Ref: Para. 10)
A3. The following are examples of events or conditions that, individually or
collectively, may cast significant doubt on the entity’s ability to continue as a
going concern. This listing is not all-inclusive nor does the existence of one or
more of the items always signify that a material uncertainty exists.
Financial
Net liability or net current liability position.
Fixed-term borrowings approaching maturity without realistic prospects of
6 SA 701, Communicating Key Audit Matters in the Independent Auditor’s Report.
7 See paragraphs 15 and A41 of SA 701.
SA 570(Revised) 10
renewal or repayment; or excessive reliance on short-term borrowings to
finance long-term assets.
Indications of withdrawal of financial support by creditors.
Negative operating cash flows indicated by historical or prospective
financial statements.
Adverse key financial ratios.
Substantial operating losses or significant deterioration in the value of
assets used to generate cash flows.
Arrears or discontinuance of dividends.
Inability to pay creditors on due dates.
Inability to comply with the terms of loan agreements.
Change from credit to cash-on-delivery transactions with suppliers.
Inability to obtain financing for essential new product development or other
essential investments.
Operating
Management intentions to liquidate the entity or to cease operations.
Loss of key management without replacement.
Loss of a major market, key customer(s), franchise, license, or principal
supplier(s).
Labor difficulties.
Shortages of important supplies.
Emergence of a highly successful competitor.
Other
Non-compliance with capital or other statutory or regulatory requirements,
such as solvency or liquidity requirements for financial institutions.
Pending legal or regulatory proceedings against the entity that may, if
successful, result in claims that the entity is unlikely to be able to satisfy.
Changes in law or regulation or government policy expected to adversely
affect the entity.
Uninsured or underinsured catastrophes when they occur.
11 SA 570(Revised)
The significance of such events or conditions often can be mitigated by other
factors. For example, the effect of an entity being unable to make its normal debt
repayments may be counter-balanced by management’s plans to maintain
adequate cash flows by alternative means, such as by disposing of assets,
rescheduling loan repayments, or obtaining additional capital. Similarly, the loss
of a principal supplier may be mitigated by the availability of a suitable alternative
source of supply.
A4. The risk assessment procedures required by paragraph 10 help the auditor
to determine whether management’s use of the going concern basis of
accounting is likely to be an important issue and its impact on planning the audit.
These procedures also allow for more timely discussions with management,
including a discussion of management’s plans and resolution of any identified
going concern issues.
Considerations Specific to Smaller Entities (Ref: Para. 10)
A5. The size of an entity may affect its ability to withstand adverse conditions.
Small entities may be able to respond quickly to exploit opportunities, but may
lack reserves to sustain operations.
A6. Conditions of particular relevance to small entities include the risk that
banks and other lenders may cease to support the entity, as well as the possible
loss of a principal supplier, major customer, key employee, or the right to operate
under a license, franchise or other legal agreement.
Remaining Alert throughout the Audit for Audit Evidence about Events or
Conditions (Ref: Para. 11)
A7. SA 315 requires the auditor to revise the auditor’s risk assessment and
modify the further planned audit procedures accordingly when additional audit
evidence is obtained during the course of the audit that affects the auditor’s
assessment of risk.8 If events or conditions that may cast significant doubt on the
entity’s ability to continue as a going concern are identified after the auditor’s risk
assessments are made, in addition to performing the procedures in paragraph
16, the auditor’s assessment of the risks of material misstatement may need to
be revised. The existence of such events or conditions may also affect the
nature, timing and extent of the auditor’s further procedures in response to the
assessed risks. SA 3309 establishes requirements and provides guidance on this
issue.
8 SA 315, paragraph 31
9 SA 330, The Auditor’s Responses to Assessed Risks
SA 570(Revised) 12
Evaluating Management’s Assessment
Management’s Assessment and Supporting Analysis and the Auditor’s
Evaluation (Ref: Para. 12)
A8. Management’s assessment of the entity’s ability to continue as a going
concern is a key part of the auditor’s consideration of management’s use of the
going concern basis of accounting.
A9. It is not the auditor’s responsibility to rectify the lack of analysis by
management. In some circumstances, however, the lack of detailed analysis by
management to support its assessment may not prevent the auditor from
concluding whether management’s use of the going concern basis of accounting
is appropriate in the circumstances. For example, when there is a history of
profitable operations and a ready access to financial resources, management
may make its assessment without detailed analysis. In this case, the auditor’s
evaluation of the appropriateness of management’s assessment may be made
without performing detailed evaluation procedures if the auditor’s other audit
procedures are sufficient to enable the auditor to conclude whether
management’s use of the going concern basis of accounting in the preparation of
the financial statements is appropriate in the circumstances.
A10. In other circumstances, evaluating management’s assessment of the
entity’s ability to continue as a going concern, as required by paragraph 12, may
include an evaluation of the process management followed to make its
assessment, the assumptions on which the assessment is based and
management’s plans for future action and whether management’s plans are
feasible in the circumstances.
The Period of Management’s Assessment (Ref: Para. 13)
A11. Most financial reporting frameworks requiring an explicit management
assessment specify the period for which management is required to take into
account all available information.
Considerations Specific to Smaller Entities (Ref: Para. 12–13)
A12. In many cases, the management of smaller entities may not have prepared
a detailed assessment of the entity’s ability to continue as a going concern, but
instead may rely on in-depth knowledge of the business and anticipated future
prospects. Nevertheless, in accordance with the requirements of this SA, the
auditor needs to evaluate management’s assessment of the entity’s ability to
continue as a going concern. For smaller entities, it may be appropriate to
discuss the medium and long-term financing of the entity with management,
provided that management’s contentions can be corroborated by sufficient
13 SA 570(Revised)
documentary evidence and are not inconsistent with the auditor’s understanding
of the entity. Therefore, the requirement in paragraph 13 for the auditor to
request management to extend its assessment may, for example, be satisfied by
discussion, inquiry and inspection of supporting documentation, for example,
orders received for future supply, evaluated as to their feasibility or otherwise
substantiated.
A13. Continued support by owner-managers is often important to smaller entities’
ability to continue as a going concern. Where a small entity is largely financed by
a loan from the owner-manager, it may be important that these funds are not
withdrawn. For example, the continuance of a small entity in financial difficulty
may be dependent on the owner-manager subordinating a loan to the entity in
favor of banks or other creditors, or the owner-manager supporting a loan for the
entity by providing a guarantee with his or her personal assets as collateral. In
such circumstances, the auditor may obtain appropriate documentary evidence
of the subordination of the owner-manager’s loan or of the guarantee. Where an
entity is dependent on additional support from the owner-manager, the auditor
may evaluate the owner-manager’s ability to meet the obligation under the
support arrangement. In addition, the auditor may request written confirmation of
the terms and conditions attaching to such support and the owner-manager’s
intention or understanding.
Period beyond Management’s Assessment (Ref: Para. 15)
A14. As required by paragraph 11, the auditor remains alert to the possibility that
there may be known events, scheduled or otherwise, or conditions that will occur
beyond the period of assessment used by management that may bring into
question the appropriateness of management’s use of the going concern basis of
accounting in preparing the financial statements. Since the degree of uncertainty
associated with the outcome of an event or condition increases as the event or
condition is further into the future, in considering events or conditions further in
the future, the indications of going concern issues need to be significant before
the auditor needs to consider taking further action. If such events or conditions
are identified, the auditor may need to request management to evaluate the
potential significance of the event or condition on its assessment of the entity’s
ability to continue as a going concern. In these circumstances, the procedures in
paragraph 16 apply.
A15. Other than inquiry of management, the auditor does not have a
responsibility to perform any other audit procedures to identify events or
conditions that may cast significant doubt on the entity’s ability to continue as a
going concern beyond the period assessed by management, which, as
discussed in paragraph 13, would be at least twelve months from the date of the
financial statements.
SA 570(Revised) 14
Additional Audit Procedures When Events or Conditions Are
Identified (Ref: Para.16)
A16. Audit procedures that are relevant to the requirement in paragraph 16 may
include the following:
• Analyzing and discussing cash flow, profit and other relevant forecasts with
management.
• Analyzing and discussing the entity’s latest available interim financial
statements.
• Reading the terms of debentures and loan agreements and determining
whether any have been breached.
• Reading minutes of the meetings of shareholders, those charged with
governance and relevant committees for reference to financing difficulties.
• Inquiring of the entity’s legal counsel regarding the existence of litigation
and claims and the reasonableness of management’s assessments of their
outcome and the estimate of their financial implications.
• Confirming the existence, legality and enforceability of arrangements to
provide or maintain financial support with related and third parties and
assessing the financial ability of such parties to provide additional funds.
• Evaluating the entity’s plans to deal with unfilled customer orders.
• Performing audit procedures regarding subsequent events to identify those
that either mitigate or otherwise affect the entity’s ability to continue as a
going concern.
• Confirming the existence, terms and adequacy of borrowing facilities.
• Obtaining and reviewing reports of regulatory actions.
• Determining the adequacy of support for any planned disposals of assets.
Evaluating Management’s Plans for Future Actions (Ref: Para. 16(b))
A17. Evaluating management’s plans for future actions may include inquiries of
management as to its plans for future action, including, for example, its plans to
liquidate assets, borrow money or restructure debt, reduce or delay
expenditures, or increase capital.
The Period of Management’s Assessment (Ref: Para. 16(c))
A18. In addition to the procedures required in paragraph 16(c), the auditor may
compare:
• The prospective financial information for recent prior periods with historical
results; and
15 SA 570(Revised)
• The prospective financial information for the current period with results
achieved to date.
A19. Where management’s assumptions include continued support by third
parties, whether through the subordination of loans, commitments to maintain or
provide additional funding, or guarantees, and such support is important to an
entity’s ability to continue as a going concern, the auditor may need to consider
requesting written confirmation (including of terms and conditions) from those
third parties and to obtain evidence of their ability to provide such support.
Written Representations (Ref: Para. 16(e))
A20. The auditor may consider it appropriate to obtain specific written
representations beyond those required in paragraph 16 in support of audit
evidence obtained regarding management’s plans for future actions in relation to
its going concern assessment and the feasibility of those plans.
Auditor Conclusions
Material Uncertainty Related to Events or Conditions that May Cast
Significant Doubt on the Entity’s Ability to Continue as a Going Concern
(Ref: Para. 18-19)
A21. The phrase “material uncertainty” means the uncertainties related to events
or conditions which may cast significant doubt on the entity’s ability to continue
as a going concern that should be disclosed in the financial statements. In some
other financial reporting frameworks the phrase “significant uncertainty” is used
in similar circumstances.
Adequacy of Disclosure when Events or Conditions Have Been Identified
and a Material Uncertainty Exists
A22. Paragraph 18 explains that a material uncertainty exists when the
magnitude of the potential impact of the events or conditions and the likelihood of
occurrence is such that appropriate disclosure is necessary to achieve fair
presentation (for fair presentation frameworks) or for the financial statements not
to be misleading (for compliance frameworks). The auditor is required by
paragraph 18 to conclude whether such a material uncertainty exists regardless
of whether or how the applicable financial reporting framework defines a material
uncertainty.
A23. Paragraph 19 requires the auditor to determine whether the financial
statement disclosures address the matters set forth in that paragraph. This
determination is in addition to the auditor determining whether disclosures about
a material uncertainty, required by the applicable financial reporting framework,
are adequate. Disclosures required by some financial reporting frameworks that
SA 570(Revised) 16
are in addition to matters set forth in paragraph 19 may include disclosures
about:
Management’s evaluation of the significance of the events or conditions
relating to the entity’s ability to meet its obligations; or
Significant judgments made by management as part of its assessment of
the entity’s ability to continue as a going concern.
Some financial reporting frameworks may provide additional guidance regarding
management’s consideration of disclosures about the magnitude of the potential
impact of the principal events or conditions, and the likelihood and timing of their
occurrence.
Adequacy of Disclosures When Events or Conditions Have Been Identified but
No Material Uncertainty Exists (Ref: Para. 20)
A24. Even when no material uncertainty exists, paragraph 20 requires the auditor
to evaluate whether, in view of the requirements of the applicable financial
reporting framework, the financial statements provide adequate disclosure about
events or conditions that may cast significant doubt on the entity’s ability to
continue as a going concern. Some financial reporting frameworks may address
disclosures about:
Principal events or conditions;
Management’s evaluation of the significance of those events or conditions
in relation to the entity’s ability to meet its obligations;
Management’s plans that mitigate the effect of these events or conditions;
or
Significant judgments made by management as part of its assessment of
the entity’s ability to continue as a going concern.
A25. When the financial statements are prepared in accordance with a fair
presentation framework, the auditor’s evaluation as to whether the financial
statements achieve fair presentation includes the consideration of the overall
presentation, structure and content of the financial statements, and whether the
financial statements, including the related notes, represent the underlying
transactions and events in a manner that achieves fair presentation.10 Depending
on the facts and circumstances, the auditor may determine that additional
disclosures are necessary to achieve fair presentation. This may be the case, for
example, when events or conditions have been identified that may cast
significant doubt on the entity’s ability to continue as a going concern but, based
10 SA 700 (Revised), Forming an Opinion and Reporting on Financial Statements, paragraph 14.
17 SA 570(Revised)
on the audit evidence obtained, the auditor concludes that no material
uncertainty exists, and no disclosures are explicitly required by the applicable
financial reporting framework regarding these circumstances.
Implications for the Auditor’s Report
Use of Going Concern Basis of Accounting is Inappropriate (Ref: Para. 21)
A26. If the financial statements have been prepared using the going concern
basis of accounting but, in the auditor’s judgment, management’s use of the
going concern basis of accounting in the financial statements is inappropriate,
the requirement in paragraph 21 for the auditor to express an adverse opinion
applies regardless of whether or not the financial statements include disclosure
of the inappropriateness of management’s use of the going concern basis of
accounting.
A27. When the use of the going concern basis of accounting is not appropriate in
the circumstances, management may be required, or may elect, to prepare the
financial statements on another basis (e.g., liquidation basis). The auditor may
be able to perform an audit of those financial statements provided that the
auditor determines that the other basis of accounting is acceptable in the
circumstances. The auditor may be able to express an unmodified opinion on
those financial statements, provided there is adequate disclosure therein about
the basis of accounting on which the financial statements are prepared, but may
consider it appropriate or necessary to include an Emphasis of Matter paragraph
in accordance with SA 706 (Revised)11 in the auditor’s report to draw the user’s
attention to that alternative basis of accounting and the reasons for its use.
Use of the Going Concern Basis of Accounting is Appropriate but a
Material Uncertainty Exists (Ref: Para. 22-23)
A28. The identification of a material uncertainty is a matter that is important to
users’ understanding of the financial statements. The use of a separate section
with a heading that includes reference to the fact that a material uncertainty
related to going concern exists alerts users to this circumstance.
A29. The Appendix to this SA provides illustrations of the statements that are
required to be included in the auditor’s report on the financial statements when
“the Accounting Principles generally accepted in India” is the applicable financial
reporting framework. If an applicable financial reporting framework other than
abovementioned framework is used, the illustrative statements presented in the
Appendix to this SA may need to be adapted to reflect the application of the
other financial reporting framework in the circumstances.
11 SA 706(Revised), Emphasis of Matter Paragraphs and Other Matter Paragraphs in the
Independent Auditor’s Report.
SA 570(Revised) 18
A30. Paragraph 22 establishes the minimum information required to be
presented in the auditor’s report in each of the circumstances described. The
auditor may provide additional information to supplement the required
statements, for example to explain:
• That the existence of a material uncertainty is fundamental to users’
understanding of the financial statements;12 or
• How the matter was addressed in the audit. (Ref: Para. A1)
Adequate Disclosure of a Material Uncertainty is Made in the Financial
Statements (Ref: Para. 22)
A31. Illustration 1 of the Appendix to this SA is an example of an auditor’s report
when the auditor has obtained sufficient appropriate audit evidence regarding the
appropriateness of management’s use of the going concern basis of accounting
but a material uncertainty exists and disclosure is adequate in the financial
statements. The Appendix of SA 700 (Revised) also includes illustrative wording
to be included in the auditor’s report for all entities in relation to going concern to
describe the respective responsibilities of those responsible for the financial
statements and the auditor in relation to going concern.
Adequate Disclosure of a Material Uncertainty is Not Made in the Financial
Statements (Ref: Para. 23)
A32. Illustrations 2 and 3 of the Appendix to this SA are examples of auditor’s
reports containing qualified and adverse opinions, respectively, when the auditor
has obtained sufficient appropriate audit evidence regarding the appropriateness
of the management’s use of the going concern basis of accounting but adequate
disclosure of a material uncertainty is not made in the financial statements.
A33. In situations involving multiple uncertainties that are significant to the
financial statements as a whole, the auditor may consider it appropriate in
extremely rare cases to express a disclaimer of opinion instead of including the
statements required by paragraph 22. SA 705 (Revised) provides guidance on
this issue.13
Communication with Regulators (Ref: Para. 22−23)
A34. When the auditor of a regulated entity considers that it may be necessary to
include a reference to going concern matters in the auditor’s report, the auditor
may have a duty to communicate with the applicable regulatory, enforcement or
supervisory authorities.
12 SA 706(Revised), paragraph A2.
13 SA 705(Revised), paragraph 10
19 SA 570(Revised)
Management Unwilling to Make or Extend Its Assessment (Ref: Para. 24)
A35. In certain circumstances, the auditor may believe it necessary to request
management to make or extend its assessment. If management is unwilling to do
so, a qualified opinion or a disclaimer of opinion in the auditor’s report may be
appropriate, because it may not be possible for the auditor to obtain sufficient
appropriate audit evidence regarding management’s use of the going concern
basis of accounting in the preparation of the financial statements, such as audit
evidence regarding the existence of plans management has put in place or the
existence of other mitigating factors.
SA 570(Revised) 20
Appendix
(Ref: Para. A29, A31–A32)
Illustrations of Auditor’s Reports Relating to Going Concern
• Illustration 1: An auditor’s report containing an unmodified opinion when
the auditor has concluded that a material uncertainty exists and disclosure
in the financial statements is adequate.
• Illustration 2: An auditor’s report containing a qualified opinion when the
auditor has concluded that a material uncertainty exists and that the
financial statements are materially misstated due to inadequate
disclosure.
• Illustration 3: An auditor’s report containing an adverse opinion when the
auditor has concluded that a material uncertainty exists and the financial
statements omit the required disclosures relating to a material uncertainty.
21 SA 570(Revised)
Illustration 1 – Unmodified Opinion When a Material Uncertainty Exists and
Disclosure in the Financial Statements is Adequate
For purposes of this illustrative auditor’s report, the following circumstances are
assumed:
• Audit of a complete set of financial statements of a listed company
(registered under the Companies Act, 2013) using a fair presentation
framework. The audit is not a group audit (i.e., SA 600 does not apply).
• The financial statements are prepared by management of the company in
accordance with the accounting Standards prescribed under section 133 of
the Companies Act, 2013.
• The terms of the audit engagement reflect the description of management’s
responsibility for the financial statements in SA 210.14
• The auditor has concluded an unmodified (i.e., “clean”) opinion is
appropriate based on the audit evidence obtained.
• The relevant ethical requirements that apply to the audit comprise the Code
of Ethics issued by ICAI together with the other relevant ethical
requirements relating to the audit and the auditor refers to both.
• Based on the audit evidence obtained, the auditor has concluded that a
material uncertainty exists related to events or conditions that may cast
significant doubt on the company’s ability to continue as a going concern.
The disclosure of the material uncertainty in the financial statements is
adequate.
• Key audit matters have been communicated in accordance with SA 701.
• The auditor has obtained all of the other information prior to the date of the
auditor's report and has not identified a material misstatement of the other
information.
• Those responsible for oversight of the financial statements differ from those
responsible for the preparation of the financial statements.
• In addition to the audit of the financial statements, the auditor has other
reporting responsibilities required under the Companies Act, 2013.
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
14 SA 210, Agreeing the Terms of Audit Engagements.
SA 570(Revised) 22
Report on the Audit of the Standalone Financial Statements
Opinion
We have audited the standalone financial statements of ABC Company Limited
(“the Company”), which comprise the balance sheet as at 31st March 20XX, and
the statement of Profit and Loss, (statement of changes in equity)15 and
statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other
explanatory information [in which are included the Returns for the year ended on
that date audited by the branch auditors of the Company’s branches located at
(location of branches)]16.
In our opinion and to the best of our information and according to the
explanations given to us, the aforesaid standalone financial statements give the
information required by the Companies Act, 2013 in the manner so required and
give a true and fair view in conformity with the accounting principles generally
accepted in India, of the state of affairs of the Company as at March 31, 20XX,
and its profit/loss, (changes in equity)17 and its cash flows for the year ended on
that date.
Basis for Opinion
We conducted our audit in accordance with the Standards on Auditing (SAs)
specified under section 143(10) of the Companies Act, 2013. Our responsibilities
under those Standards are further described in the Auditor’s Responsibilities for
the Audit of the Financial Statements section of our report. We are independent
of the Company in accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical requirements that are
relevant to our audit of the financial statements under the provisions of the
Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these requirements and the Code of
Ethics. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Material Uncertainty Related to Going Concern
We draw attention to Note XX in the financial statements, which indicates that
the Company incurred a net loss of Rs. ZZZ during the year ended March 31,
15 Where applicable.
16 Where applicable.
17 Where applicable
23 SA 570(Revised)
20XX and, as of that date, the Company’s current liabilities exceeded its total
assets by Rs. YYY. As stated in Note 6, these events or conditions, along with
other matters as set forth in Note XX, indicate that a material uncertainty exists
that may cast significant doubt on the Company’s ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current period.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In addition to the matter described
in the Material Uncertainty Related to Going Concern section, we have
determined the matters described below to be the key audit matters to be
communicated in our report.
[Description of each key audit matter in accordance with SA 701.]
Other Information [or another title if appropriate such as “Information
Other than the Financial Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in SA 720(Revised) –
see Illustration 1 in Appendix 2 of SA 720(Revised).]
Responsibilities of Management and Those Charged with Governance for
the Financial Statements
[Reporting in accordance with SA 700(Revised)–see Illustration 1 in SA 700
(Revised).18]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700(Revised) – see Illustration 1 in SA 700
(Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700(Revised) – see Illustration 1 in SA 700
(Revised).]
While reporting under Section 143(3) of the Companies Act, 2013, the auditor is
18 Paragraphs 34 and 39 of SA 700 (Revised) require wording to be included in the auditor’s report
for all entities in relation to going concern to describe the respective responsibilities of those
responsible for the financial statements and the auditor in relation to going concern.
SA 570(Revised) 24
required to suitably reword the wordings given in the Illustration in SA
700(Revised) to meet the circumstances of the audit.
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation19)
(Membership No.)
Place of Signature:
Date:
19 Partner or Proprietor, as the case may be
25 SA 570(Revised)
Illustration 2 – Qualified Opinion When a Material Uncertainty Exists and
the Financial Statements Are Materially Misstated Due to Inadequate
Disclosure
For purposes of this illustrative auditor’s report, the following circumstances are
assumed:
• Audit of a complete set of financial statements of a listed company using a
fair presentation framework. The audit is not a group audit (i.e., SA 600 does
not apply).
• The financial statements are prepared by management of the company in
accordance with the accounting Standards prescribed under section 133 of
the Companies Act, 2013.
• The terms of the audit engagement reflect the description of management’s
responsibility for the financial statements in SA 210.
• The relevant ethical requirements that apply to the audit comprise the Code
of Ethics issued by ICAI together with the other relevant ethical requirements
relating to the audit and the auditor refers to both.
• Based on the audit evidence obtained, the auditor has concluded that a
material uncertainty exists related to events or conditions that may cast
significant doubt on the company’s ability to continue as a going concern.
Note YY to the financial statements discusses the magnitude of financing
arrangements, the expiration and the total financing arrangements; however
the financial statements do not include discussion on the impact or the
availability of refinancing or characterize this situation as a material
uncertainty.
• The financial statements are materially misstated due to the inadequate
disclosure of the material uncertainty. A qualified opinion is being expressed
because the auditor concluded that the effects on the financial statements of
this inadequate disclosure are material but not pervasive to the financial
statements.
• Key audit matters have been communicated in accordance with SA 701.
• The auditor has obtained all of the other information prior to the date of the
auditor’s report and the matter giving rise to the qualified opinion on the
financial statements also affects the other information.
• Those responsible for oversight of the financial statements differ from those
responsible for the preparation of the financial statements.
• In addition to the audit of the financial statements, the auditor has other
reporting responsibilities required under the Companies Act, 2013.
SA 570(Revised) 26
INDEPENDENT AUDITOR’S REPORT
To the Members of ABC Company Limited
Report on the Audit of the Standalone Financial Statements
Qualified Opinion
We have audited the standalone financial statements of ABC Company Limited
(“the Company”), which comprise the balance sheet as at 31st March 20XX, and
the statement of Profit and Loss, (statement of changes in equity)20 and
statement of cash flows for the year then ended, and notes to the financial
statements, including a summary of significant accounting policies and other
explanatory information [in which are included the Returns for the year ended on
that date audited by the branch auditors of the Company’s branches located at
(location of branches)]21.
In our opinion and to the best of our information and according to the
explanations given to us, except for the incomplete disclosure of the information
referred to in the Basis for Qualified Opinion section of our report, the aforesaid
standalone financial statements give the information required by the Companies
Act, 2013 in the manner so required and give a true and fair view in conformity
with the accounting principles generally accepted in India, of the state of affairs
of the Company as at March 31, 20XX, and its profit/loss, (changes in equity)22
and its cash flows for the year ended on that date.
Basis for Qualified Opinion
As discussed in Note YY, the Company’s financing arrangements expire and
amounts outstanding are payable on April 30, 20XX. The Company has been
unable to conclude re-negotiations or obtain replacement financing. This
situation indicates that a material uncertainty exists that may cast significant
doubt on the Company’s ability to continue as a going concern. The financial
statements do not adequately disclose this matter.
We conducted our audit in accordance with the Standards on Auditing (SAs)
specified under section 143(10) of the Companies Act, 2013. Our responsibilities
under those Standards are further described in the Auditor’s Responsibilities for
the Audit of the Financial Statements section of our report. We are independent
of the Company in accordance with the Code of Ethics issued by the Institute of
Chartered Accountants of India together with the ethical requirements that are
relevant to our audit of the financial statements under the provisions of the
20 Where applicable.
21 Where applicable.
22 Where applicable
27 SA 570(Revised)
Companies Act, 2013 and the Rules thereunder, and we have fulfilled our other
ethical responsibilities in accordance with these requirements and the Code of
Ethics. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our qualified opinion.
Other Information [or another title if appropriate such as “Information
Other than the Financial Statements and Auditor’s Report Thereon”]
[Reporting in accordance with the reporting requirements in SA 720 (Revised) –
see Illustration 6 in Appendix 2 of SA 720 (Revised).
The last paragraph of the other information section in Illustration 6 would be
customized to describe the specific matter giving rise to the qualified opinion that
also affects the other information.]
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current period.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In addition to the matter described
in the Basis for Qualified Opinion section, we have determined the matters
described below to be the key audit matters to be communicated in our report.
[Descriptions of each key audit matter in accordance with SA 701.]
Responsibilities of Management and Those Charged with Governance for
the Financial Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700
(Revised).23]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700
(Revised).]
Report on Other Legal and Regulatory Requirements
[Reporting in accordance with SA 700 (Revised) – see Illustration 1 in SA 700
(Revised).]
While reporting under Section 143(3) of the Companies Act, 2013, the auditor is
23 Paragraphs 34 and 39 of SA 700 (Revised) require wording to be included in the auditor’s report
for all entities in relation to going concern to describe the respective responsibilities of those
responsible for the financial statements and the auditor in relation to going concern.
SA 570(Revised) 28
required to suitably reword the wordings given in the Illustration in SA
700(Revised) to meet the circumstances of the audit.
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation24)
(Membership No.)
Place of Signature:
Date:
24 Partner or Proprietor, as the case may be
29 SA 570(Revised)
Illustration 3 – Adverse Opinion When a Material Uncertainty Exists and is
Not Disclosed in the Financial Statements
For purposes of this illustrative auditor’s report, the following circumstances are
assumed:
• Audit of a complete set of financial statements of a non-corporate entity
using a fair presentation framework. The audit is not a group audit (i.e., SA
600 does not apply).
• The financial statements are prepared by management of the entity in
accordance with the Accounting Standards issued by the Institute of
Chartered Accountants of India.
• The terms of the audit engagement reflect the description of management’s
responsibility for the financial statements in SA 210.
• The relevant ethical requirements that apply to the audit are the Code of
Ethics issued by ICAI25.
• Based on the audit evidence obtained, the auditor has concluded that 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
the entity is considering bankruptcy. The financial statements omit the
required disclosures relating to the material uncertainty. An adverse opinion
is being expressed because the effects on the financial statements of such
omission are material and pervasive.
• The auditor is not required, and has otherwise not decided, to communicate
key audit matters in accordance with SA 701.
• Those responsible for oversight of the financial statements differ from those
responsible for the preparation of the financial statements.
• The auditor has no other reporting responsibilities required under local law.
INDEPENDENT AUDITOR’S REPORT
To the Partners of ABC & Associates [or Other Appropriate Addressee]
Adverse Opinion
We have audited the financial statements of ABC & Associates (the entity), which
comprise the balance sheet as at March 31st 20XX, and the profit and loss
25 Specify any applicable ethical requirements under the relevant laws or regulations applicable to
the entity.
SA 570(Revised) 30
account, (and statement of cash flows)26 for the year then ended, and notes to
the financial statements, including a summary of significant accounting policies.
In our opinion, because of the omission of the information mentioned in the Basis
for Adverse Opinion section of our report, the accompanying financial statements
do not give a true and fair view of the state of affairs of the entity as at March
31st, 20XX, and of its profit/ loss (and its cash flows)27 for the year then ended in
accordance with the Accounting Standards issued by the Institute of Chartered
Accountants of India.
Basis for Adverse Opinion
The entity’s financing arrangements expired and the amount outstanding was
payable on March 31, 20XX. The entity has been unable to conclude re-
negotiations or obtain replacement financing and is considering filing for
bankruptcy. This situation indicates that a material uncertainty exists that may
cast significant doubt on the entity’s ability to continue as a going concern. The
financial statements do not adequately disclose this fact.
We conducted our audit in accordance with the Standards on Auditing (SAs)
issued by ICAI. Our responsibilities under those standards are further described
in the Auditor’s Responsibilities for the Audit of the Financial Statements section
of our report. We are independent of the entity in accordance with the Code of
Ethics issued by ICAI, and we have fulfilled our other ethical responsibilities in
accordance with the Code of Ethics. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our adverse opinion.
Responsibilities of Management and Those Charged with Governance for
the Financial Statements28
[Reporting in accordance with SA 700 (Revised) – see Illustration 4 in SA 700
(Revised).29]
Auditor’s Responsibilities for the Audit of the Financial Statements
[Reporting in accordance with SA 700 (Revised) – see Illustration 4 in SA 700
(Revised).]
26 Where applicable.
27 Where applicable.
28 Or other terms that are appropriate in the context of the legal framework of the particular
jurisdiction.
29 Paragraphs 34 and 39 of SA 700 (Revised) require wording to be included in the auditor’s report
for all entities in relation to going concern to describe the respective responsibilities of those
responsible for the financial statements and the auditor in relation to going concern.
31 SA 570(Revised)
For XYZ & Co
Chartered Accountants
(Firm’s Registration No.)
Signature
(Name of the Member signing the Audit Report)
(Designation30)
(Membership No.)
Place of Signature:
Date:
30 Partner or Proprietor, as the case may be.
SA 570(Revised) 32