1. substantial disposition of assets outside the ordinary course of business,
2. restructuring of debt,
3. externally forced revisions of its operations or similar actions.
Before disclosing the auditor's substantial doubt concerning the entity's ability to continue as a going concern, the auditor is required to consider management's plans over the next year to meet its obligations as they become due.
Today discussion is on going concern where ISA 570 state that:
Going concern basis
- Presumes that the entity will continue in operational existence for the forseeable future.
- Requires Financial statements(FS) to be prepared on going concern basis (IAS 1).
- ISA 570 requires auditor to consider entity ability to continue as a going concern and appropriate disclosure in FS.
- If going concern inappropriate? - need assess different values in FS (break-up value)
- Asset (write-down) to Recoverable amount.
- Additional liabiities for losses arise.
- Required consider going concern status of company and disclosure to going concern in arriving audit opinion.
- Required assess adequacy (process) used by directors have satisfied themselves the going concern basis and adequate discloure made.
- Make enquiries of directors and examine document in support company going concern status (Cash flows and budget forecast)
- Consider director have paid particular attention the period is adequate(12month from date of balance sheet), others is enquire management knowledge,in terms of events and conditions that may affect entity ability to continue going concern.
- Need to obtain management representation and adequancy disclosure in FS
- Indicators of going concern ( e.g impairment assets,trading losses,net liabilities,etc)
- Significant concern Going concern - But DO NOT disagree but adequate disclosure -> UNQUALIFIED - "Emphasis of matter"
- Inadequate disclosure->Qualified - "Adverse opinion"
- Director attention period less 12 month from date of Balance sheet -> modify report - Qualified Report as "LIMITATION OF SCOPE"
- Auditor disagree of preparation of FS on Going concern - Qualified as "Adverse opinion"
- Auditor unable to form opinion on Going concern- Limitation on scope -> Qualified "Except For" if material, "Disclaimer" if pervasive.
Event - condition when auditor identified significant doubt entitiy ability to continue as going concern should:
- Review management plan for future action based on going concern assessment,
- Gather sufficient audit evidence to confirm it is material uncertainty exists and any plan to mitigate those factors,
- Seek written representation form management for future action,
- Analyse and discuss Cash flow with management,
- Read minutes of meetings between shareholder and board of directors,
- Enquire entity lawyer to identify any litigation or claims?,
- Review events after period end where any items affects the entity going concern.