ISA 570 (Revised 2024)

Going Concern

1Objective and scope

ISA 570 deals with the auditor's responsibilities relating to going concern and the implications for the auditor's report. Under the going concern basis of accounting the financial statements are prepared on the assumption that the entity will continue in operation for the foreseeable future; IAS 1 requires management to assess this over at least twelve months from the reporting date and to disclose material uncertainties. The auditor's responsibilities are to obtain sufficient appropriate evidence about, and conclude on, the appropriateness of management's use of the going concern basis, and to conclude whether a material uncertainty exists; the auditor cannot predict future events, so the absence of any reference to going concern in the report is not a guarantee of the entity's ability to continue. ISA 570 (Revised 2024), effective for periods beginning on or after 15 December 2026, strengthens the risk assessment and evaluation of management's assessment, extends the period the auditor considers to at least twelve months from the date of approval of the financial statements, requires the auditor to conclude on management's judgements even where no events or conditions were identified, and adds an explicit going concern section to every auditor's report.

The objectives are to obtain sufficient appropriate evidence regarding, and conclude on, the appropriateness of management's use of the going concern basis of accounting; to conclude, based on the evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern; and to report in accordance with the standard.

2Key definitions

3Requirements

Risk assessment and remaining alert

• In performing risk assessment procedures under ISA 315, consider whether events or conditions exist that may cast significant doubt on the entity's ability to continue as a going concern; determine whether management has already performed a preliminary assessment and, if so, discuss it and management's plans; if not, discuss the basis for the intended use of the going concern basis and inquire whether events or conditions exist.
• Remain alert throughout the audit for evidence of events or conditions that may cast significant doubt, including from analytical procedures, subsequent events, legal letters, bank correspondence and minutes.

Evaluating management's assessment

• Evaluate management's assessment of the entity's ability to continue as a going concern, covering the same period as management used (and requesting management to extend it if it is shorter than required), and consider whether the assessment includes all relevant information of which the auditor is aware.
• Where management has not yet performed an assessment, request it to do so; the auditor cannot substitute their own analysis for management's, though a lack of any assessment is itself a limitation and a control deficiency.
• Inquire of management as to its knowledge of events or conditions beyond the period of its assessment that may cast significant doubt.
• Under the 2024 revision, evaluate the method, assumptions and data in management's assessment with the same rigour as an accounting estimate (ISA 540), including forecasts and the feasibility of plans, and consider the effect of relevant information the auditor has obtained.

Additional procedures when events or conditions are identified

If events or conditions have been identified that may cast significant doubt, the auditor obtains sufficient appropriate evidence to determine whether a material uncertainty exists by performing additional procedures, including consideration of mitigating factors:

• Where management has not yet assessed, requesting management to make its assessment.
• Evaluating management's plans for future actions (to liquidate assets, borrow or restructure debt, reduce or delay expenditure, increase capital) and whether the outcome of those plans is likely to improve the situation and whether the plans are feasible in the circumstances.
• Where the entity has prepared a cash flow forecast and analysis of the forecast is significant to evaluating the plans: evaluating the reliability of the underlying data and determining whether there is adequate support for the assumptions (sensitivity analysis, comparison of prior forecasts with actual results, consistency with the auditor's understanding of the business and the economy).
• Considering whether any additional facts or information have become available since the date of management's assessment.
• Requesting written representations from management and, where appropriate, those charged with governance regarding their plans for future actions and the feasibility of these plans.
• In practice also: reviewing loan agreements and covenant compliance, obtaining confirmation of facility renewals from bankers, reading minutes for financing discussions, inquiring of legal counsel, assessing the status of a letter of support from a parent or shareholder and the supporter's ability to honour it, and reviewing post-year-end trading and cash position.

Conclusions

The auditor evaluates whether sufficient appropriate evidence has been obtained regarding, and concludes on, the appropriateness of management's use of the going concern basis. Based on the evidence, the auditor concludes whether, in the auditor's judgement, a material uncertainty exists. Where the going concern basis is appropriate but a material uncertainty exists, the auditor determines whether the financial statements adequately disclose the principal events or conditions, management's plans to deal with them, that there is a material uncertainty that may cast significant doubt and that the entity may be unable to realise its assets and discharge its liabilities in the normal course of business. Where events or conditions were identified but the auditor concludes no material uncertainty exists (a 'close call'), the auditor evaluates whether the financial statements provide adequate disclosure about those events or conditions and management's judgement.

4Documentation and reporting

The auditor communicates with those charged with governance events or conditions identified that may cast significant doubt, whether they constitute a material uncertainty, whether the use of the going concern basis is appropriate, the adequacy of disclosures, and, where applicable, the implications for the auditor's report. The file records the identification of events or conditions, the evaluation of management's assessment and plans including the forecast work, the mitigating factors, the representations, the conclusion on the basis and on material uncertainty, the evaluation of disclosure, and the reporting decision.

5Examinable focus