ISA 570 - Going Concern

Question 1

ISA 570: Going Concern

Answer 1

ISA 570 - Going Concern, talks about the Fundamental Accounting Assumptions, ie. Going Concern.

Going Concern:
> Entity continue for foreseeable future, and
> No intention to liquidate.
> For coming period of 12 months.

Question 2

ISA 570: Preliminary Assessment:

Answer 2

Going Concern is inappropriate?
> Assets are recorded at Realisable Value.
> Liabilities are recorded at settlement/ Payment value.

The Auditor needs to ensure or obtain evidences that the management assumption as to Going whether it is appropriate or not and perform Procedures as per ISA 315.

Alert: Auditor must be:
> Professionally Skeptist,

Two Assessment scenarios:
1. If the management conducts Preliminary Assessment, inquire from management about the Events they encountered and ask what the Mitigation or action plans are.
> If period is less than 12 months, request the management to extend their period of Assessment.
> Also take into account the events that happened after the Assessment date.

2. If no Assessment was done, what is the basis for Going Concern Assumption?
   > Are there any events as of today, which they are aware of that could cast a doubt on the Entity’s continuity?

If the Auditor finds that there are some events that cast doubt on an Entity’s ability and material uncertainty existing, then Adopt Additional Audit Procedures.

Additional Audit Procedures to include:
> Request the management to conduct the preliminary assessment, if not done.
> Check the future plans and their reliability.
> Check the future cash flow and their reliability.
> Check events that happened after preliminary Assessment, the Auditor needs to check the impact of those events.
> Obtain written representation from management about this position.
> When the material uncertainty exists, check whether proper disclosures are made.

Two important Disclosures must be done by management:
1. Adequately disclose about events and circumstances which is casting a doubt and what are the action plans of management.
2. If Material uncertainty existing disclose the same also tell us because of this event the assets can’t be realized or Liabilities can’t be paid off.

Question 3

ISA 570: Going Concern Assumption & Audit Report:

Answer 3

Going Concern Situations or Scenarios:
1. Management prepares FS on GCA.
> But Auditor concludes that it’s inappropriate,
> Give an Adverse opinion.

2. a) GCA appropriate &
   b) Material uncertainty exists:
   > Management Disclosed Material uncertainty adequately,
   > Auditor concludes GCA is appropriate but Material uncertainty exists,
   > Unmodified Opinion.
   *Draw attention to related events.
   * Clear statement in Audit Report.

3.a) GCA appropriate &
b) Material uncertainty exists:
> But no disclosure by management,
> Qualified Opinion or Adverse Opinion.
> Give Reasons in the “Basis of opinion “.

4. Management not ready to conduct Assessment.
   > Auditor to check the impact on Audit Report.

Question 4

ISA 570: Communication with TCWG:

Answer 4

> Event or condition that cast a doubt on Entity’s ability, inform them about those events.
Tell whether these events are really material, do they have impact to cast a doubt on Entity’s ability to continue and their uncertainty and its material impact.
Before issuing Audit Report, Auditor needs to discuss with TCWG about the implications.

If the management delays in approving the financial statement, the Auditor has to check whether this delay is having any doubt regarding GCA. Why delay? The delay can be an indicator that GCA is under question.

Significant events or Conditions?
> Financial indicators
> Operational indicators
> Other indicators.

1. Financial Indicators:
   > Continous losses from the last 3 years.
   > Continous non-payment of loans.
   > Negative Cashflow
   > Bankruptcy
   > Ratios are bad.
   > Unable to pay the dividends.
   > Unable to obtain Credit from the bank.
   > Breaches of loan agreements.
2. Operational indicators:
   > > Unable to pay Creditors.
   > KMP leaving the organization.
   > Labour strikes.
   > Intention to close an operation.
   > Strong competition effects.
   > Major supplier / Customer shutdown their business.
3. Other Indicators:
   > Changes in the law.
   > Major catastrophe
   > Earthquakes and Tsunami.
   > Under insurance or no Insurance.

In Conclusion:
Management takes/ makes the assumptions and the Auditor needs to obtain Evidences to support the assumptions made by the management with regard to ability of management to continue as the Going Concern or the ability of the entity to continue as a Going Concern.