Going Concern

Question 1

ISA 570

Answer 1

Requires the auditor to evaluate managements assessment of the ability of the entity to continue as a going concern

The period in the uk is atleast 12 months from the date the financial statements are approved

Question 2

Symptoms of going concern

Answer 2

Net current liabilities/ excess liabilities

Cash flow problems/ inability to pay creditors/ lenders

Post balance sheet losses

Restructuring debts

Change in markets/ adverse regulation

Labour problems

Loss of key suppliers/customers

Litigation

Question 3

Audit procedures- assessment of going concern

Answer 3

Period of going concern is appropriate

Reviewing entities risk identification processes

Identifying any symptoms of going concern problems

Reviewing the forecasts for accuracy

Reviewing key assumptions in the forecasts

Performing sensitivity analysis on forecasts

Review borrowings

Discuss issues with management

If going concern is dependent on uncertainty e.g securing bank loan they with review appropriate documents.

Question 4

Impact of audit opinion on going concern issues

Answer 4

If the auditor concludes that the going concern presumption is inappropriate:

If the Financial statements have been prepared on the going concern basis then the auditor must give an adverse opinion

If they have been correctly prepared on a break up basis then no modification is required

Question 5

Impact of audit opinion on going concern issues - materiality

Answer 5

If the going concern is appropriate but depends on the outcome of an uncertainty audit opinion will depend on disclosure in the financial statements :

If the matter is adequately disclosed in the financial statements then the auditor will issues an unmodified opinion with an emphasis of matter paragraph

If it is not adequately disclosed the auditor must give report will be modified with either an “except for”
Or adverse opinion