The going concern review can require significant judgment to be applied and the impact of external factors, such as significant global events, can make the assessment of management’s going concern review challenging. This involves auditor’s critical judgment in determining entity’s ability to carry on as a going concern.
ISA 570 (Revised) is effective for audits of financial statements for periods ending on or after December 15, 2016.ISA 570 (Revised) Going Concern, contains well-established guidance on going concern, including the following objectives for the auditor: to obtain sufficient appropriate audit evidence, if there is any doubt on going concern ability of the entity and to determine its impact on auditor’s report in accordance with ISA 570 (revised). Paragraph A16 of ISA 570 contains examples of additional procedures that may be used.Analysis of cash flow is usually a key feature of any going concern evaluation, considering the borrowing facilities are in place so bank confirmations for the same can be obtained.
Impact on an audit opinion:
Where the disclosure of material uncertainty is considered adequate, the auditor will express an unmodified opinion and will also include a separate section in the auditor’s report entitled ‘Material Uncertainty Related to Going Concern’.
‘Material Uncertainty Related to Going Concern’- (MURGC): Proper disclosure in the notes of financials should be given and in audit report separate paragraph giving reference to the disclosed notes in financial statements should be highlighted here.Previously going concern issues where highlighted in Emphasis of matter paragraph which has now been revised and an additional paragraph is supposed to be added in auditor’s report as per ISA 570 (revised).
Now the question arises where should this be placed in our audit report and what should we include this?
Answer:It will be shown right after the ” basis of opinion ” paragraph.
Material uncertainty related to going concern:
We draw attention to note x in the financial statements, which indicates that the company incurred a net loss of ZZZ during the year ended 31 December 20X1 and, as of that date, the company’s current liabilities exceeded its total assets by YYY. As stated in note x, these events or conditions, along with other matters as set forth in note x, 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.
Using the uncertainty paragraph where adequate or no disclosure is made in the financial statements – this would give rise to a material misstatement and require a qualified opinion.
Going concern is an area which should be front and center of every audit and evidence must be challenged with the appropriate level of professional skepticism.
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