KnS School of Business Studies
ACCA F8 Audit & Assurance
Summary ISA 570 by SK
Expected Questions on Going Concern (ISA 570 –
Revised)
1. Define Going Concern assumption?
2. Explain 4 / 5/ 6 potential indicators that company is not a
going concern
3. List and explain the going concern indicators?
4. Differentiate/Explain/Discuss between Management &
External Auditor responsibilities for Going Concern
assumption?
5. Briefly explain the auditor’s responsibility for reporting on going
concern to the directors / TCWG?
6. What are the reporting responsibilities of an external auditor with
respect to Going Concern?
7. Scenario Based Question ? ….IMP
List and explain the Indicators of Going Concern
Describe the audit procedures / audit tests to be performedby the
external Auditor to assess that whether the companyis Going
Concern or not.
Explain the impact on the audit report / opinion
Page 1 of 370 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)
KnS School of Business Studies
ACCA F8 Audit & Assurance
Summary ISA 570 by SK
Going Concern Assumption
Definition
Under the going concern assumption, an entity is viewed as continuing in business for the
foreseeable future. Unless management either intends to liquidate the entity or to cease operations,
or has no realistic alternative but to do so and when Going concern assumption is valid than 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.
Responsibilities of Management
The going concern assumption is a fundamental principle in the preparation of F/S. Therefore
management’s responsibility for the presentation and preparation of the F/S also includes responsibility
to assess the entity’s ability to continue as a going concern even if there is no explicit requirement to do
so in the framework.
If mgmt. becomes aware of facts that cast doubt upon the entity’s ability to continue as going concern
than Mgmt. must disclose those uncertainties in the F/S.
If mgmt. concludes that G.C assumption is not appropriate than F/S will be prepared on breakup value
basis but this fact must be disclosed in the F/S for the shareholder / users
Period of Assessment…… (Evaluating Management Assessment)
12 months from the Balance sheet .
Responsibilities of External Auditor …IMP
The auditor must remain alert throughout the period for conditions that may cast doubt on the entity’s
ability to continue as a going concern. The auditor’s responsibility is to obtain audit evidence about the
appropriateness of management’s use of the going concern assumption in the preparation of the
financial statements for the year and to conclude that whether there is a material uncertainty or not.
The auditor cannot predict such future events or conditions, accordingly, the absence of any
reference to going concern uncertainty in an auditor’s report cannot be viewed as a guarantee
as to the entity’s ability to continue as a going concern
Page 2 of 370 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)
KnS School of Business Studies
ACCA F8 Audit & Assurance
Summary ISA 570 by SK
Going concern indicators (3 types)
Financial IMP…!
Operating
Others
Audit Procedures When Events or Conditions Are Identified
Specific Audit procedures to be performed as follows: (Please learn these…..!!) (IMP)
1. Obtain company’s cashflow forecast and review the cash inflows and cash outflows
and also the reasonableness of their assumptions and also discuss unfavorable findings with
management.
2. Reading the terms of loan agreements and determining whether any have been breached.
3. Review the company’s post year-end sales order book to assess and determine if the levels of
trade/sales are likely to increase.
4. Review post year end (subsequent) B.O.D minutes and minutes of other relevant committees
to identify other issues which might indicate other risks of going concern.
5. Inquiring of the entity’s legal counsel regarding the existence of litigation
and claims. (eg Claims from Suppliers and Customers)
6. Enquire from company lawyers with respect to proposed change in any law / legislation
which might make company product obsolete in the near future.
7. Confirming the existence of arrangements to provide financial support from related and third
parties and assessing their financial ability.
8. Evaluating plans to deal with un-fulfilled customer orders. (Orders that are pending yet )
9. Performing audit procedures regarding subsequent events to identify those that affect the entity’s
ability to continue as a going concern.
10. Confirming the existence, terms and conditions of borrowing facilities from Banks. (eg Loan
Agreements or correspondence)
11. Obtaining written / management representation confirming the B.O.Ds view that company
is a going concern. (to be linked and covered in ISA 580)
OR Obtain Management representation for future plans & their feasibility.
Page 3 of 370 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)
KnS School of Business Studies
ACCA F8 Audit & Assurance
Summary ISA 570 by SK
EXAM FOCUS POINT
1. Theoretical question can ALSO be asked for the above procedures.
2. In the case of scenario-based question, above procedures will
have to be linked with the given scenario in the exam.
3. OTs can also be asked from Going concern Topic along with Audit
Report.
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Going Concern Indicators ...................... MOST IMP
Events or conditions that may cast doubt about the going concern assumption (potential indicators that
an entity is not a going concern).
Financial Indicators Net liability or net current liability position
Fixed-term borrowings approaching maturity without prospectsof
renewal or repayment
Indications of withdrawal of financial support by creditors
Negative operating cash flows (historical or prospective i.e
future Cash flows)
Adverse key financial ratios or decreased as compared to last
year)
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 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
Page 4 of 370 Prepared by M. Sajid Kapadia (ACA, FCCA, APFA)
