Audit and Assurance · Going concern

Going Concern Disclosures and Audit Reporting Implications for ACCA Audit and Assurance

Updated 11 October 2026 · Fact-checked

Going concern reporting depends on two judgements: is the going concern basis appropriate, and is there a material uncertainty? If the basis is appropriate and disclosure is adequate, report a material uncertainty section with an unmodified opinion. If disclosure is inadequate, give a qualified or adverse opinion. If the basis is inappropriate, give an adverse opinion.

Understand Going Concern Disclosures and Audit Reporting Implications

Financial statements are normally prepared on the going concern basis. This means the entity will continue in operation for the foreseeable future. Management must assess this, and the auditor must conclude on whether management's use of the basis is appropriate and whether a material uncertainty exists.

The two sources set the period differently. IAS 1 says management's assessment must cover at least, but not limited to, twelve months from the end of the reporting period. ISA 570 (Revised) sets the auditor's step. The auditor considers the same period management used. If that period 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.

A material uncertainty exists when events or conditions may cast significant doubt on the entity's ability to continue, and the potential impact is so large that users need clear disclosure to understand the financial statements. Examples are loan facilities expiring with no renewal agreed, or major losses with negative cash flows.

The audit report depends on what you find. There are three main outcomes. First, the basis is appropriate and there is no material uncertainty: no material uncertainty section is needed, and the standard going concern responsibilities text is enough. If events or conditions were identified but you conclude there is no material uncertainty, you must still evaluate whether the financial statements disclose them adequately under the applicable framework (for IAS 1, the disclosure of significant judgements). If they do not, modify the opinion. Second, the basis is appropriate, a material uncertainty exists and the financial statements disclose it adequately: the opinion is unmodified, but you add a section headed Material Uncertainty Related to Going Concern. Third, something is wrong: disclosure is inadequate, or the basis is inappropriate. Then the opinion is modified.

A material uncertainty section is not a modification. It does not change the opinion. It draws attention to the note in the financial statements that describes the uncertainty. It is a separate section from Emphasis of Matter. Emphasis of matter highlights a matter already well disclosed that is fundamental to understanding. Going concern uncertainties have their own required section instead.

The modification type follows the normal rules. Inadequate disclosure of a material uncertainty gives a qualified opinion (except for) if the effect is material but not pervasive, or an adverse opinion if it is material and pervasive. If management has prepared the statements on a going concern basis but the auditor concludes this is inappropriate, the opinion is adverse. Where management refuses to make or extend its assessment, or the auditor cannot get evidence, the auditor first considers the implications, including whether to withdraw from the engagement where practicable. If the auditor does not withdraw, the opinion is qualified if the possible effects are material but not pervasive, or the auditor disclaims an opinion if they are material and pervasive.

Key rules to remember

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 opinion is not modified in respect of the matter.
Basis appropriate, material uncertainty not adequately disclosed: Qualified ('except for') if material but not pervasive; adverse if material and pervasive; The basis for opinion section must explain the inadequate disclosure.
Going concern basis inappropriate but used: Adverse opinion; Use this even if management discloses the doubt, because the wrong basis pervades the statements.
No material uncertainty, but events or conditions identified: No Material Uncertainty section; evaluate whether the financial statements adequately disclose the events or conditions under the applicable framework (IAS 1 significant judgements); modify the opinion if they do not; ISA 570 (Revised) requires this evaluation. If disclosure is adequate, the opinion stays unmodified. If it is inadequate, modify using the normal material and pervasive rules.
Management unwilling to assess or extend its assessment: Consider implications, including withdrawal where practicable; otherwise qualified opinion or disclaimer; This is a limitation of scope. Choose between qualified and disclaimer by pervasiveness.
Assessment period: IAS 1: at least, but not limited to, twelve months from the end of the reporting period. ISA 570 (Revised): if management's period covers less than twelve months from the date of approval of the financial statements, the auditor asks management to extend it; These are two separate sources. IAS 1 sets management's minimum period. ISA 570 (Revised) tells the auditor to consider the period management used and, if it is shorter than twelve months from the date of approval, to ask management to extend it to at least twelve months from that date.

How to solve Going Concern Disclosures and Audit Reporting Implications questions

Use the same sequence for every going concern reporting question. It keeps your answer structured and stops you picking the wrong report.

1Identify the events or conditions in the scenario, such as losses, negative cash flows, expiring loans or lost customers.
2Decide whether management has used the going concern basis. If the entity will be liquidated or has no realistic alternative, the basis is inappropriate.
3Decide whether a material uncertainty exists. Check whether management has credible, evidenced plans that remove the significant doubt.
4Check the financial statement disclosure. Does the note describe the events, management's plans and the existence of the uncertainty clearly?
5Select the report. Adequate disclosure gives unmodified with a material uncertainty section. Inadequate disclosure gives qualified or adverse. Inappropriate basis gives adverse.
6Judge pervasiveness if modifying, and state the wording of the opinion and the basis for opinion section.
7Mention communication with those charged with governance and any effect on written representations.

Quickest way: Three-question report selector

When to use it: Use this for objective test questions and for the first minute of a written question.

Question 1: is the going concern basis appropriate? If no, adverse opinion.
Question 2: is there a material uncertainty? If no, normal report (subject to disclosure being adequate).
Question 3: is it adequately disclosed? If yes, unmodified plus material uncertainty section. If no, qualified, or adverse if pervasive.
Check that you have not called a material uncertainty section an emphasis of matter.

Common mistakes in Going Concern Disclosures and Audit Reporting Implications

Treating the material uncertainty section as a modified opinion.
Students see a special paragraph and assume the opinion has changed.
Fix: Remember the opinion stays unmodified if disclosure is adequate. The section only draws attention to the note.
Using an emphasis of matter paragraph for a going concern material uncertainty.
Both draw attention to a disclosure, so they look alike.
Fix: Use the separate heading 'Material Uncertainty Related to Going Concern'. Emphasis of matter is for other fundamental matters.
Giving a qualified opinion when the basis is inappropriate.
Students apply 'except for' to every disclosure problem.
Fix: If the going concern basis is inappropriate, the effect is pervasive. Give an adverse opinion.
Forgetting to check whether the disclosure is adequate.
Students focus on the doubt itself and not on the note.
Fix: Always read what the financial statements say. Adequate disclosure and inadequate disclosure lead to different reports.
Ignoring management's plans.
Students assume any loss-making entity has a material uncertainty.
Fix: Assess whether plans are feasible and supported by evidence, such as signed facility agreements. Credible plans may remove the uncertainty.
Saying the auditor is responsible for the entity's survival.
Students confuse the audit report with a guarantee.
Fix: State that the report is not a guarantee of future viability. The auditor reports on the appropriateness of the basis and disclosure.

Worked examples

Example 1

Hartley Co's bank loan of $4m is repayable in three months. The bank has not agreed to renew it. Management has prepared the financial statements on the going concern basis. A note clearly describes the loan, the lack of agreement and the resulting significant doubt. The auditor agrees the uncertainty is material and the note is adequate. What audit report should be issued?

Show the solution

The events are the loan expiry with no renewal agreed. This gives rise to a material uncertainty.
Going concern basis is still appropriate, because management has no intention or need to liquidate and expects to continue if renewal succeeds.
The note adequately discloses the events, the doubt and the possibility that assets may not be realised at normal values.
So the opinion is unmodified.
Add a section headed Material Uncertainty Related to Going Concern, referring to the note, and state that the opinion is not modified in respect of the matter.

Answer: Unmodified opinion with a Material Uncertainty Related to Going Concern section. It is not an emphasis of matter.

Example 2

Brightway Co has lost its main customer and has negative cash flows. The auditor concludes a material uncertainty exists. The financial statements are prepared on the going concern basis but say nothing about the uncertainty. The auditor judges the omission material but not pervasive. What report is appropriate? What changes if management has decided to cease trading but still prepares the statements on a going concern basis?

Show the solution

The basis is appropriate in the first case, because the entity has not decided to cease trading.
A material uncertainty exists but is not disclosed. This is inadequate disclosure.
The effect is material but not pervasive, so the opinion is qualified ('except for').
The basis for opinion section must explain the omission and, where practicable, include the disclosures that should have been made, unless prohibited by law or regulation.
In the second case management has decided to cease trading, so the going concern basis is inappropriate.
Where management intends to liquidate or cease trading, the going concern basis is inappropriate regardless of how well the position is disclosed. Disclosure cannot cure the use of the wrong basis, so adequacy of disclosure is irrelevant to the opinion.
The effect on the financial statements is pervasive, because assets and liabilities would need measuring on a different basis. The opinion is adverse.

Answer: First case: qualified opinion ('except for') for inadequate disclosure. The basis for opinion section explains the omission and, where practicable, gives the missing disclosures unless law or regulation prohibits it. Second case: adverse opinion, regardless of disclosure, because the going concern basis is inappropriate when management has decided to cease trading.

Exam tips

Write the report type first, then justify it. Markers award marks for the correct conclusion and the reason.
Always state whether the opinion is modified. Say clearly that a material uncertainty section does not modify it.
In objective test questions, look for the words 'adequately disclosed'. They decide between unmodified and qualified.
Use the scenario facts, such as the facility dates and the wording of the note, when you justify your answer.
If pervasiveness is not stated, explain your judgement briefly rather than just naming a report.

Going Concern Disclosures and Audit Reporting Implications 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 Disclosures and Audit Reporting Implications: frequently asked questions

What is the difference between emphasis of matter and material uncertainty related to going concern?

A material uncertainty section deals only with a going concern uncertainty that is adequately disclosed. Emphasis of matter draws attention to a different disclosed matter that is fundamental to users' understanding. Neither modifies the opinion.

When does the auditor modify the opinion for going concern?

The auditor modifies in three situations. First, disclosure of a material uncertainty (or of identified events or conditions) is inadequate: qualified if material but not pervasive, adverse if pervasive. Second, the going concern basis is inappropriate: adverse. Third, there is a limitation on scope, such as management refusing to assess or extend its assessment, or insufficient evidence: qualified if the possible effects are material but not pervasive, or a disclaimer if they are material and pervasive.

Does a material uncertainty paragraph mean the company will fail?

No. It means there is significant doubt that depends on future events, and users need to read the disclosure. The audit report does not guarantee the entity's survival or failure.

What if management refuses to assess going concern?

This is a limitation on the auditor's work. The auditor first considers withdrawing from the engagement where practicable. If the auditor does not withdraw, the opinion is qualified if the possible effects are material but not pervasive, or the auditor disclaims an opinion if they are material and pervasive.