Interpretation and Application of International Standards on Auditing

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ISA 570 (REDRAFTED) GOING CONCERN

ISA 570 (redrafted) outlines the auditor’s responsibility in ascertaining whether management’s use of the going concern assumption is appropriate in the preparation of the financial statements.

When an entity is considered to be a ‘going concern’, it means that the entity will continue in operational existence for the ‘foreseeable future’.

GOING CONCERN PRESUMPTION

The going concern presumption is a fundamental concept in the preparation of financial statements. Under the going concern concept, an entity is considered to be a going concern if management do not have the intention, nor it is necessary, to liquidate, cease trading or seek protection from creditors pursuant to laws or regulation. Under the provisions in IAS 1 ‘Presentation of Financial Statements’ management are required to make an assessment of the entity’s ability to continue as a going concern. Some financial reporting frameworks may not make an explicit requirement for management to make an assessment of the entity’s ability to continue as a going concern. However, since going concern is such a fundamental concept in the preparation of financial statements, management need to make such an assessment even if the financial reporting framework which they have adopted does not make any explicit requirements to do so [ISA570.4].

The assessment of going concern may be a simple and straight forward assessment in some entities, whereas other, more complex entities may be required to ...