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Going Concern Review under ISA 570 for ACCA AA

Updated 11 October 2026 · Fact-checked

Going concern is the assumption that an entity will continue in business for the foreseeable future. Under ISA 570, management assesses it and the auditor evaluates that assessment. You spot indicators, perform procedures, then decide the report: unmodified, material uncertainty paragraph, qualified or adverse, depending on disclosure and appropriateness of the basis.

Understand Going Concern Review (ISA 570)

The going concern basis is the default way financial statements are prepared under IFRS. It assumes the entity will keep operating and will not need to liquidate or stop trading. Assets are carried on that basis, not at break-up values.

Management must assess the entity's ability to continue. IAS 1 requires management to use all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. The auditor does not make the assessment. The auditor evaluates management's assessment and concludes on whether it is appropriate. Under ISA 570 (Revised), if management's assessment covers less than twelve months from the date of approval of the financial statements, the auditor asks management to extend it to at least twelve months from that date. Separately, the auditor asks management about events beyond the period that may cast doubt.

Look for indicators in three groups: financial (net liability position, negative operating cash flows, breached loan covenants, loans nearing maturity with no refinancing, arrears to suppliers), operating (loss of key management, loss of a major customer or supplier, labour problems, shortage of key supplies) and other (legal proceedings, new legislation, uninsured catastrophes). An indicator is a warning. It does not prove failure. Mitigating factors such as new finance or a supportive parent may cancel it out.

The auditor's conclusion drives the report. If the going concern basis is appropriate and there is no material uncertainty, the opinion is unmodified. If it is appropriate but a material uncertainty exists and is adequately disclosed, the opinion stays unmodified but the report has a separate section headed Material Uncertainty Related to Going Concern. If the uncertainty is not adequately disclosed, the opinion is qualified or adverse. If the financial statements are prepared on the going concern basis and that basis is inappropriate, the opinion is adverse, even if disclosures are made. If management has instead used an acceptable alternative basis, such as break-up, and disclosed it properly, the opinion is not adverse for that reason. It is unmodified, possibly with an emphasis of matter paragraph.

Key rules to remember

Responsibility split: Management (directors) assess and disclose; auditor evaluates and concludes; Never say the auditor is responsible for the entity continuing in business. The auditor gives no guarantee of future viability.
Assessment period: Management (IAS 1): future period is at least, but not limited to, 12 months from the end of the reporting period. Auditor (ISA 570 Revised): asks management to extend its assessment to at least 12 months from the date of approval of the financial statements, if it covers less; The ISA 570 point is a request the auditor makes to management. If management's assessment covers less than 12 months from the date of approval of the financial statements, the auditor asks management to extend it. Do not mix the two reference points: IAS 1 uses the end of the reporting period, ISA 570 uses the date of approval. Separately, the auditor asks management about events beyond the period that may cast doubt.
Basis appropriate, no material uncertainty: Unmodified opinion, no going concern paragraph; Use when indicators are mitigated and the plans are feasible.
Basis appropriate, material uncertainty adequately disclosed: Unmodified opinion + 'Material Uncertainty Related to Going Concern' section; The section refers to the note and states that the uncertainty may cast significant doubt.
Basis appropriate, material uncertainty not adequately disclosed: Qualified ('except for') or adverse opinion; Choose adverse if the lack of disclosure is pervasive. The report explains the omission.
Basis inappropriate: Going concern basis used but inappropriate: adverse opinion; This applies even if disclosure is given. Statements should be prepared on another basis such as break-up. If an acceptable alternative basis has been used and properly disclosed, the opinion is unmodified, possibly with an emphasis of matter paragraph.

How to solve Going Concern Review (ISA 570) questions

Use this order for any going concern question, whether it asks for indicators, procedures or reporting.

1Read the scenario and underline every fact that signals trouble: losses, cash flow, loans, customers, staff, legal matters.
2Label each as financial, operating or other, and say why it threatens continuation. Link it to the entity's facts.
3Note any mitigating facts such as new finance, asset sales or contracts won.
4List procedures that test management's plans, not just the past: forecasts, loan terms, correspondence, post year-end events.
5Judge whether a material uncertainty exists, using magnitude and likelihood of the effect.
6Check disclosure in the financial statements: is the uncertainty and management's plan described clearly?
7State the report outcome: unmodified, material uncertainty section, qualified or adverse, and justify it.
8If asked, add communication to those charged with governance and a written representation on management's plans.

Quickest way: Indicator, procedure, report in three lines

When to use it: Use for objective test items and short written parts when time is tight.

Ask: has the going concern basis been used when it is not appropriate? If yes, the answer is adverse opinion. (If an acceptable alternative basis such as break-up has been used and properly disclosed, the opinion is unmodified, possibly with an emphasis of matter.)
If the basis is appropriate, ask: is there a material uncertainty? If no, unmodified.
If yes, ask: is it adequately disclosed? Yes means a material uncertainty section. No means qualified or adverse.

Common mistakes in Going Concern Review (ISA 570)

Calling a material uncertainty paragraph a modification of the opinion when disclosure is adequate.
Students link any extra paragraph with a modified report.
Fix: Remember the opinion is unmodified if the uncertainty is adequately disclosed. The separate section only draws attention to it.
Saying the auditor is responsible for assessing going concern.
The auditor does most of the visible work in the exam answer.
Fix: Write that management assesses and discloses, and the auditor evaluates and concludes on that assessment.
Listing procedures that only look at past results, such as recalculating last year's ratios.
Students default to general analytical work.
Fix: Aim procedures at the future: cash flow forecasts and their assumptions, loan agreements, post year-end sales and supplier terms.
Treating every indicator as proof the entity will fail.
Scenarios list many negatives.
Fix: State that indicators raise doubt only. Weigh them against mitigating factors and management's feasible plans.
Giving an adverse opinion for inadequate disclosure of a material uncertainty in every case.
Students memorise one outcome.
Fix: Use qualified if the effect is material but not pervasive. Use adverse if it is pervasive. Name which you choose and why.
Ignoring management's unwillingness to extend or make an assessment.
The point is brief in the text.
Fix: If management is unwilling to make or extend its assessment when asked, the auditor considers the implications for the report. This may be a qualified opinion or a disclaimer of opinion under ISA 705, depending on materiality and pervasiveness. A disclaimer is only possible where the possible effects could be both material and pervasive.

Worked examples

Example 1

Your audit client, Tarn Co, has a year-end overdraft close to its limit. The overdraft facility expires four months after the year-end. Its largest customer, giving 40% of revenue, has just gone into liquidation. Management's forecast shows recovery through a new contract. Identify the going concern indicators and the procedures you would perform.

Show the solution

Indicators, financial: an overdraft near its limit and a facility due to expire within the assessment period, so refinancing risk exists.
Indicator, operating: loss of the major customer, which removes a large share of revenue. The liquidation also creates a bad debt risk on the receivable.
Mitigation: the new contract, but it is unproven until signed and its terms checked.
Procedures: obtain the cash flow forecast and test its assumptions against past accuracy, contracts and orders.
Procedures: review the overdraft agreement and any correspondence with the bank on renewal, and ask the bank for confirmation if possible.
Procedures: inspect the new contract, confirm its value and timing, and review sales and cash receipts after the year-end.
Procedures: obtain written representations from management about its plans and their feasibility, and discuss with those charged with governance.

Answer: Indicators are the near-limit overdraft expiring soon and the loss of the 40% customer. Mitigation is the new contract. Test the forecast, bank facility renewal, the new contract and post year-end trading, and obtain written representations.

Example 2

The directors of Bram Co believe the entity can continue because a lender has agreed in writing to extend a loan. The auditor finds a material uncertainty remains because the extension depends on a covenant being met that is likely to be breached. The financial statements fully disclose the uncertainty and plans. What is the effect on the audit report?

Show the solution

Step 1: Is the going concern basis appropriate? Yes, the directors have used it and the entity is not about to liquidate.
Step 2: Does a material uncertainty exist? Yes, the extension depends on a covenant likely to be breached, so significant doubt may arise.
Step 3: Is it adequately disclosed? Yes, the note describes the uncertainty and management's plans.
Step 4: Opinion: unmodified, because the disclosure is adequate.
Step 5: Add a section headed Material Uncertainty Related to Going Concern, referring to the note and stating that the uncertainty may cast significant doubt on the ability to continue.

Answer: An unmodified opinion with a separate Material Uncertainty Related to Going Concern section that points to the disclosure note.

Exam tips

In Section C, tie every indicator to a fact in the scenario and say why it matters. A bare list of indicators scores poorly.
Write procedures that test management's plans: forecasts, loan agreements, post year-end events and representations.
For reporting, state the three decisions in order: basis appropriate, material uncertainty, adequate disclosure. Then name the opinion.
In objective test items, watch for the trap that adequate disclosure means an unmodified opinion, and an inappropriate basis means adverse.
Remember a wrong objective answer scores zero with no partial marks, so read the options for opinion type closely.

Going Concern Review (ISA 570) in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Going Concern Review (ISA 570): frequently asked questions

What is the difference between a material uncertainty and the going concern basis being inappropriate?

With a material uncertainty, the basis is still appropriate but events may cast significant doubt on continuation. When the basis is inappropriate, the entity is not a going concern, for example it will cease trading. If the statements are still prepared on the going concern basis, the opinion is adverse. If an acceptable alternative basis has been used and properly disclosed, the opinion is unmodified, possibly with an emphasis of matter.

Does the auditor have to look beyond twelve months?

IAS 1 requires management to use all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period. Under ISA 570 (Revised), if management's assessment covers less than twelve months from the date of approval of the financial statements, the auditor asks management to extend it to at least twelve months from that date. Separately, the auditor asks management about events beyond the period that may cast doubt, and considers those where they are relevant.

What if management refuses to extend its assessment period?

The auditor asks management to extend it to at least twelve months from the date of approval of the financial statements. If management is unwilling to make or extend its assessment, the auditor considers the implications for the report. This may be a qualified opinion or a disclaimer of opinion under ISA 705, depending on materiality and pervasiveness. A disclaimer is only possible where the possible effects could be both material and pervasive.

Is going concern a key audit matter?

A material uncertainty related to going concern is reported only in the Material Uncertainty Related to Going Concern section. It is not described as a key audit matter, and the key audit matters section is not a substitute for it. Other going concern matters that required significant auditor attention may be key audit matters.