Assurance - Planning - Going Concern Consideration

Question 1

What is a going concern? and management responsibilities

Answer 1

• Going concern is viewed as continuing in business for the foreseeable future
• CAS 570 is a going concerns

Under IAS 1 - it requires the management of public companies annually 12 months assessment of the company (ASPE 1400)

Question 2

What are some indicators of ongoing concerns

Answer 2

Under CAS 570.A3 - List of indicators: Financial indicator
Ex. Long-term debt that is maturing, adverse key financial ratios, reliance on excessive short-term financing
Operating - Plan to liquidate entity in cease operation, loss on market share, labor issues
Other indicators - Non-compliance with law, changes in laws or regulations that negatively impact

Question 3

What are the 3 auditor’s responsibilities of a going concern and evaluating management

Answer 3

1. Obtain SAAE regarding the appropriateness of management going concerns basis
2. Conclude based on audit evidence
3. Determine the implication of the auditor report
   - Auditors are to discuss with the management of identifying conditions that cast significant doubt of going concern assessment

Evaluating management
1. The auditor believes issue with going concern, to request that management provide a going concern assessment
2. Once the revised assessment is received, the auditor must assess if the reasonableness through discussion with management

Question 4

How is CAS 570 used to help with audit procedures when conditions are identified

Answer 4

CAS 570 provides a layout of specific procedures to be completed
1. Request that management perform an assessment if one has not been performed already
2. Evaluate management plan of action in relation to the assessment
3. Where a cash flow forecast has been prepared, evaluate the reliability of underlying data

Additional procedures
1. Analyzing and discussing the entity’s latest interim F/S
2. Reading terms of debenture and loan agreement to determine if any have been breached
3. Reading minutes of the BOD meeting
4. Inquiring of the entity’s legal counsel regarding the existence of litigation and claim

Question 5

What are the three audit conclusion

Answer 5

1. Going concern basis is appropriate
   - Accounting is appropriate without material uncertainty, no modification is needed for F/S
2. Going concern basis of accounting is appropriate, but a material uncertainty exists
   - Draw attention to the note in F/S that sets out the going concern disclosure
   - State that these events/conditions indicate that material uncertainty exists that may significantly doubt an entity’s ability to continue as an ongoing concern
3. Going concern basis of accounting is not appropriate
   - Auditors determine that the use of the going concern basis of accounting is not appropriate, determine whether the F/S are presented on a liquidation basis and adequate disclosure
   - Auditor may be able to express an unmodified opinion on those F/S but may consider it appropriate or necessary to include

Question 6

Provide the diagram of assessing going concern

Answer 6

1. Is going concern appropriate basis
   Yes - 2. Does material uncertainty exist?
   Yes - 3. Adquatately disclosed - Yes - Unmodified opinion with a section of a material uncertainty
   No - Qualified or adverse opinion

If the first question is answered No
2. Statement prepared appropriately?
Yes - Unmodified opinion with Emphasis of matter paragraph
No - Adverse opinion