Guide to Using International Standards on Auditing in - IFAC

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162 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts Paragraph # ISA Objective(s) 570.9 The objectives of the audi<strong>to</strong>r are: (a) To obtain sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements; (b) To conclude, based on the audit evidence obtained, whether a material uncertainty exists related <strong>to</strong> events or conditions that may cast significant doubt on the entity’s ability <strong>to</strong> continue as a going concern; and (c) To determine the implications for the audi<strong>to</strong>r’s report. 14.1 Overview The going-concern assumption is fundamental <strong>to</strong> the preparation of financial statements. ISA 570 provides guidance on the audi<strong>to</strong>r’s responsibility in the audit of financial statements with respect <strong>to</strong> the going-concern assumption and management’s assessment of the entity’s ability <strong>to</strong> continue as a going concern. Paragraph # Relevant Extracts from ISAs 570.2 Under the going concern assumption, an entity is viewed as continuing in business for the foreseeable future. General purpose financial statements are prepared on a going concern basis, unless management either intends <strong>to</strong> liquidate the entity or <strong>to</strong> cease operations, or has no realistic alternative but <strong>to</strong> do so. Special purpose financial statements may or may not be prepared in accordance with a financial reporting framework for which the going concern basis is relevant (for example, the going concern basis is not relevant for some financial statements prepared on a tax basis in particular jurisdictions). When the use of the going concern assumption is appropriate, assets and liabilities are recorded on the basis that the entity will be able <strong>to</strong> realize its assets and discharge its liabilities in the normal course of business. (Ref: Para. A1) Under the going-concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from credi<strong>to</strong>rs pursuant <strong>to</strong> laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able <strong>to</strong> realize its assets and discharge its liabilities in the normal course of business.
163 <strong>Guide</strong> <strong>to</strong> <strong>Using</strong> <strong>International</strong> <strong>Standards</strong> on Auditing in the Audits of Small- and Medium-Sized Entities Volume 1—Core Concepts 14.2 Risk Assessment Procedures Paragraph # Relevant Extracts from ISAs 570.10 When performing risk assessment procedures as required by ISA 315, the audi<strong>to</strong>r shall consider whether there are events or conditions that may cast significant doubt on the entity’s ability <strong>to</strong> continue as a going concern. In so doing, the audi<strong>to</strong>r shall determine whether management has already performed a preliminary assessment of the entity’s ability <strong>to</strong> continue as a going concern, and: (Ref: Para. A2-A5) (a) If such an assessment has been performed, the audi<strong>to</strong>r shall discuss the assessment with management and determine whether management has identified events or conditions that, individually or collectively, may cast significant doubt on the entity’s ability <strong>to</strong> continue as a going concern and, if so, management’s plans <strong>to</strong> address them; or (b) If such an assessment has not yet been performed, the audi<strong>to</strong>r shall discuss with management the basis for the intended use of the going concern assumption, and inquire of management whether events or conditions exist that, individually or collectively, may cast significant doubt on the entity’s ability <strong>to</strong> continue as a going concern. 570.11 The audi<strong>to</strong>r shall remain alert throughout the audit for audit evidence of events or conditions that may cast significant doubt on the entity’s ability <strong>to</strong> continue as a going concern. (Ref: Para. A6) The requirements can be summarized as shown in the exhibit below. Exhibit 14.2-1 Any events that may cast significant doubt on entity's ability <strong>to</strong> continue as a going concern? Ask Has management performed a preliminary assessment of the entity’s ability <strong>to</strong> continue as a going concern? Yes Identify any events/ conditions and obtain management’s action plans in response. No Discuss existence of any events/conditions with management and obtain their response. Evaluate management’s plan of action and/or supporting documentation. Remain alert throughout audit for evidence of events/ conditions that may cast significant doubt on entity's ability <strong>to</strong> continue as a going concern. Conclude if a material uncertainty exists or if the use of the goingconcern assumption is inappropriate.
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Guide to Using International Standards on Auditing in - IFAC

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