ACCA AAA · Chapter 24
The Auditor’s Report 2: Going Concern
Your chapter at a glance. Open any section, or keep the whole map in view.
Assessment and audit work
Going concern evidence → disclosure → report
Going concern basis
- Assumes operations continue for foreseeable future
- Management assesses suitability and prepares disclosures
Auditor evaluates
- Management’s assessment and supporting evidence
- Whether going concern basis is appropriate
- Whether material uncertainty exists
- At least 12 months from financial statement approval
Indicators
- Losses, negative cash flow, net current liabilities
- Debt maturity, covenant breach, inability to pay creditors
- Loss of customer, licence, finance or key supplier
- Litigation, regulatory action or uninsured catastrophe
Mitigating plans
- Refinancing, shareholder support or new equity
- Asset sales, cost savings and new contracts
- Evaluate feasibility, timing and financial capacity
Assessment and forecasts
- Evaluate method, data and significant assumptions
- Compare earlier forecasts with actual results
- Recalculate forecasts and test opening cash
- Corroborate assumptions and perform sensitivity analysis
Plans and subsequent events
- Inspect lender offers and terms or support agreements
- Review post-year-end cash flows and creditor payments
- Seek written representations to support other evidence
Evaluate disclosure
- Principal events, conditions, plans and judgements
- MURGC and possible effects, where relevant
When basis appropriate
- No MURGC: Going Concern section; unmodified opinion
- MURGC adequately disclosed: MURGC section; unmodified opinion
When problems remain
- Inadequate disclosure or evidence: modified opinion
- Inappropriate going concern basis: adverse opinion
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