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ASA 570 Going Concern (ASA 570) is concerned with the responsibility of the auditors in auditing the financial report related to going concern and the implication for the report of auditor. Under this standard, the responsibility of the auditor is to obtain adequate suitable audit evidence on the going concern basis of accounting used by the management and on the presence of any material uncertainty on the entity’s ability to continue as a going concern (auasb.gov.au 2021). This essay is involved in summarizing the key requirements of ASA 570.
As mandated by ASA 570.10, the presence of any event casting major uncertainty on an entity’s capacity to continue as a going concern needs to be considered by the auditor. This requires the auditor to assess whether the preliminary examination of the capability of the entity to continue as a going concern has been assessed by the management. The auditor needs to discuss whether any material uncertainty exists and the management’s plan to address them in case such evaluation has already been undertaken from the management’s end. The auditor also needs to be alarmed for the presence of such material uncertainty as well (auasb.gov.au 2021).
According to ASA 570.12, the assessment of the management of the entity in continuing as a going concern shall be evaluated by the auditor. In case the assessment of the management of the capability of the entity in continuing as a going concern is lower than the applicable period which is the period of around twelve months from the date of current report of the auditor, the management shall be requested by the auditor to lengthen the period of assessment to the relevant period which the auditor uses. The auditor is needed to consider whether all the relevant information is considered in the management’s assessment (Guo, Delaney and Ahmed 2020).
As per ASA 570.15, the knowledge of the management of any events or circumstance casting major uncertainty on the capability of the entity in continuing as a going concern further than the management’s assessment period shall enquired by the auditor (Carson, Fargher and Zhang 2019).
As per ASA 570.16, additional audit procedures shall be performed by the auditor for acquiring adequate suitable audit evidence in case of the presence of events or circumstances casting key hesitation on the capability of the entity in continuing as a going concern. These added processes of audit are to request the management to undertake going concern assessment in case the same has not been performed yet, to appraise the plan of the management to address the going concern uncertainties, to assess whether cash flow forecast has been prepared by the management which is crucial in assessing the management’s plan, to consider the availability of any additional information or fact and to request written representation on the plans for future actions from the management’s end (Geiger, Gold and Wallage 2019).
As per ASA 570.17, whether the adequate suitable audit evidence has been acquired concerning the suitability of the management’s utilization of going concern basis of accounting to prepare the financial report shall be evaluated by the auditor. Such audit evidence are based upon by the auditor in concluding the presence of any event or circumstance casting key doubt on the capability of the entity in continuing as a going concern. As per ASA 570.19, in case of the appropriate use of going concern basis of accounting by the management in the presence of material uncertainty, two key aspects shall be determined by the auditor; first, whether the details of key events or circumstance creating material uncertainty on the capability of the entity in continuing as a going concern and the strategy of the management to deal with them have been sufficiently revealed in the financial report, and second, whether the inability of the entity to realise the assets and discharge the liabilities because of the presence of material uncertainty has been sufficiently disclosed in the same financial report (auasb.gov.au 2021).
As per ASA 570.21, an adverse opinion shall be expressed by the auditor in case the going concern basis of accounting used by the management in order to prepare the financial report is incorrect even though the management has prepared the financial report through the use of same basis. As per ASA 570.22, in case the going concern basis of accounting has been properly utilized by the management but material uncertainty still exists, the requirement is to express an unmodified opinion in case the management has made sufficient disclosure of the material uncertainty in the financial report and this require the auditor to include a distinct segment called “Material uncertainty Related to Going Concern’. However, it is needed to express a qualified or adverse opinion in case the management has not made sufficient revelation of the material uncertainty in the financial report. Lastly, the implication of the unwillingness of the management in extending or making the going concern assessment for the auditor’s report needs to be considered by the auditor (auasb.gov.au 2021).
In case there is event or circumstance which cast major uncertainty on the capability of the entity in continuing as a going concern, the same shall be communicated by the auditor to those charged with governance. Such communication includes whether the circumstance establish material uncertainty, whether going concern basis of accounting used by the management is proper, sufficiency of the relevant disclosure and implication for the auditor’s report. Moreover, it is needed for the auditor to enquire further in case there is a major delay from the management’s end to approve the financial report (legislation.gov.au 2021).
On the overall basis, the requirement of ASA 570 is that the auditor to take into consideration the appositeness of use of going concern basis of accounting by the entity’s management. Further requirement for the auditor is the examination of whether the management has undertaken the assessment of the presence of any event or circumstance which cast momentous uncertainty on the capability of the entity in continuing as a going concern. In case of the presence of such event or circumstance, ASA 570 necessitates the auditor to apply additional audit processes to collect adequate correct audit evidence on the presence of material uncertainty. ASA 570 also requires the auditor to issue appropriate opinion based on the whole assessment.
Auasb.gov.au. 2021. Auditing Standard ASA 570 Going Concern. Available at: https://www.auasb.gov.au/admin/file/content102/c3/ASA_570_Compiled_2020.pdf (Accessed: 6 January 2021).
Guo, Y., Delaney, D. and Ahmed, A., 2020. Is an Auditor's Propensity to Issue Going Concern Opinions a Valid Measure of Audit Quality?. Australian Accounting Review.
Carson, E., Fargher, N. and Zhang, Y., 2019. Explaining auditors’ propensity to issue going?concern opinions in Australia after the global financial crisis. Accounting & Finance, 59(4), pp.2415-2453.
Geiger, M.A., Gold, A. and Wallage, P., 2019. A Synthesis of Research on Auditor Reporting on Going-Concern Uncertainty: An Update and Extension. FAR Report.
ASA 570 - Going Concern - December 2015 2021. Available at: https://www.legislation.gov.au/Details/F2020C00660 (Accessed: 6 January 2021).
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