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Hi Kim
I had a doubt, when do we know that a material misstatement will affect going concern status of a firm?
I think rather than misstatement to “affect going concern” – it is the lack of going concern status that gives rise to a risk of material misstatement (because the FS might be prepared on the wrong basis or inadequate disclosure given – IAS 1).
Consider a scenario with falling revenue, no cash, loans to be repaid and the bank might not renew a loan/overdraft – there doesn’t have to be ANY misstatement in the financial statements for going concern to be affected – but if there is material uncertainty about going concern this must be shown in the financial statements (either change basis – VERY rarely – or most likely – IAS 1 DISCLOSURE).
If the auditor identifies understatement of liabilities (for example) as a risk, that might increase material uncertainty about going concern – but as a misstatement it would “create” going concern risk.
Does that answer your question?
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