Summary of Auditing Standards 570 Going Concern

Summary of Auditing Standards 570 Going Concern

 

1. Fundamental accounting assumption:

a. An entity's continuance as a going concern for the foreseeable future is assumed in the  preparation of F.S in the absence of information to the contrary.

b. If this assumption is unjustified the value of assets & liabilities may need to be adjusted.

 

2. The auditor should consider whether the going concern assumption is appropriate or not.

 

3. Indications of non appropriateness:

a. Financial Indications: Negative working capital, Substantial operating losses , Arrears or discontinuance of dividends, Inability to pay creditors on due dates, Change from credit to cash transactions with suppliers, arrangement with creditors for reduction of liability.

b. Operating Indications: Loss of key management without replacement, major market, franchise, license, or principal supplier. Labour difficulties or shortages of important supplies.

c. Other Indications: Non­compliance with statutory requirements, Pending legal

proceedings that may result in judgments bringing financial crisis.

 

4. Audit Evidence :

a. Analyse and discuss cash flow, profit and other relevant forecasts with management, the  entity's latest available interim financial statements.

b. Review the terms of debentures & loans and determine whether any have been breached,  the status of matters under litigation and claims.

c. Read minutes of the meetings of shareholders, the board of directors with reference to  financial difficulties.

 

5. The auditor would also consider and discuss with management its plans for future action, such as plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditure, or increase capital.

 

6. Audit Conclusion and Reporting: Conclude whether Going Concern assumption is valid or not. If not, then the F/S would be a misleading; the auditor should express an Adverse  Opinion or Disclaimer of opinion.


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