Audit and Assurance · The Independent Auditor's Report

Going Concern and Material Uncertainty in the Auditor's Report

Updated 11 October 2026 · Fact-checked

Under ISA 570, the auditor reports on going concern by checking management's use of the going concern basis and its disclosures. If a material uncertainty exists and is adequately disclosed, the opinion stays unmodified with a separate section headed Material Uncertainty Related to Going Concern. If disclosure is inadequate, give a qualified or adverse opinion.

Understand Going Concern and Material Uncertainty in the Report

Financial statements are normally prepared on the going concern basis. This assumes the entity will continue in operation for the foreseeable future and will not need to liquidate or stop trading. Management must assess this. The auditor must conclude whether management's use of the basis is appropriate and whether a material uncertainty exists.

A material uncertainty exists when events or conditions may cast significant doubt on the entity's ability to continue, and the potential impact is large enough that users need clear disclosure to understand the financial statements. Examples are loan covenant breaches, loss of a major customer, or repeated losses with no funding in place.

The report depends on three questions. Is the going concern basis appropriate? Is there a material uncertainty? Is the disclosure adequate? Your answers decide the report wording.

If the basis is appropriate, there is a material uncertainty, and disclosure is adequate, the opinion is unmodified. The auditor adds a section headed Material Uncertainty Related to Going Concern. It refers to the note in the financial statements and states that the opinion is not modified in respect of this matter. It appears separately under its own heading, typically after the Basis for Opinion section and before Key Audit Matters, as in the ISA 570 illustrative reports. The exact position is not a fixed rule. It is not an emphasis of matter paragraph.

If disclosure is inadequate, the auditor gives a qualified or adverse opinion, because the financial statements are misstated through lack of disclosure. If management has used the going concern basis but it is inappropriate, the opinion is adverse. If management will not make or extend its assessment period when asked, or limits the auditor's work, that is a limitation on scope. If the possible effects are material but not pervasive, give a qualified opinion. If they are material and pervasive, disclaim an opinion.

Key rules to remember

Going concern basis appropriate, no material uncertainty: No going concern reference in the report; unmodified opinion; The auditor still has responsibilities, but there is nothing extra to report.
Material uncertainty, adequately disclosed: Unmodified opinion + section 'Material Uncertainty Related to Going Concern'; The section refers to the note and says the opinion is not modified for this matter.
Material uncertainty, inadequate disclosure: Qualified ('except for') or adverse opinion; Qualified if the effect is material but not pervasive. Adverse if it is material and pervasive. Include a Basis for Qualified or Adverse Opinion section.
Going concern basis inappropriate: Adverse opinion; Applies when management has used the going concern basis but the auditor concludes it is inappropriate.
Management unwilling to make or extend assessment: Possible effects material but not pervasive: qualified opinion. Material and pervasive: disclaimer of opinion (scope limitation); The auditor asks management to make or extend the assessment period. Refusal is a limitation on scope.
Section placement: Material Uncertainty Related to Going Concern section has its own heading, typically after Basis for Opinion and before Key Audit Matters as in the ISA 570 illustrations; The exact position is not mandatory. Matters on going concern are by nature key audit matters but are reported in the material uncertainty section, not under Key Audit Matters.

How to solve Going Concern and Material Uncertainty in the Report questions

Use this order for any going concern reporting question. It keeps you from jumping to a modified opinion too early.

1Identify the events or conditions that cast doubt, such as losses, covenant breaches or loss of funding.
2Decide whether management has used the going concern basis and whether that basis is appropriate.
3Assess whether a material uncertainty exists after considering management's plans and their feasibility.
4Check whether the financial statements disclose the uncertainty adequately: the events, management's plans and the fact that a material uncertainty exists.
5Select the opinion: unmodified with a material uncertainty section if disclosure is adequate; qualified or adverse if it is not; adverse if the basis is inappropriate.
6State the wording or heading needed in the report and explain the reason for your choice.
7Mention other actions if relevant, such as communicating with those charged with governance.

Quickest way: Three-question going concern test

When to use it: Use this for Section A and Section B objective questions where you must pick the right report outcome quickly.

Ask: is the going concern basis still appropriate? If no, the answer is adverse opinion.
If yes, ask: is there a material uncertainty? If no, the answer is unmodified with no extra section.
If there is a material uncertainty, ask: is it adequately disclosed? Yes means unmodified with a material uncertainty section. No means qualified or adverse.
For qualified versus adverse, ask whether the effect is material only, or material and pervasive.
Scope-limitation check: if management will not make or extend its assessment when asked, or limits your work, treat it as a limitation on scope. Possible effects material but not pervasive give a qualified opinion. Material and pervasive give a disclaimer of opinion.

Common mistakes in Going Concern and Material Uncertainty in the Report

Modifying the opinion whenever a material uncertainty exists.
Students link doubt about going concern with a problem in the financial statements.
Fix: If disclosure is adequate, the opinion remains unmodified. Only add the material uncertainty section.
Using an emphasis of matter paragraph for a material uncertainty.
Both paragraphs draw attention to a note.
Fix: Use the specific heading Material Uncertainty Related to Going Concern. An emphasis of matter paragraph is not used for this.
Giving a qualified opinion when the going concern basis is clearly inappropriate.
Students assume qualified is the default modification.
Fix: If management has used the going concern basis and it is inappropriate, the opinion is adverse.
Forgetting to say the opinion is not modified in the material uncertainty section.
Students focus on describing the risk and forget the required statement.
Fix: Include the wording that refers to the note and states that the opinion is not modified in respect of this matter.
Ignoring management's plans when judging a material uncertainty.
Students stop at the indicators of trouble.
Fix: Assess whether plans such as refinancing or asset sales are feasible and supported by evidence before concluding.
Treating a refusal to extend the assessment period as a minor issue.
Students overlook scope limitations in going concern.
Fix: State that refusal is a limitation on scope and consider a qualified opinion or disclaimer.

Worked examples

Example 1

Your audit client has breached a loan covenant. The bank has not yet agreed to waive it. The directors have prepared the financial statements on the going concern basis and disclosed the covenant breach, the lack of waiver, and their plan to renegotiate. You conclude that a material uncertainty exists. What opinion and report content are required?

Show the solution

The events, a covenant breach and no waiver, cast significant doubt on the ability to continue.
The going concern basis is still appropriate because management has no intention or need to liquidate or cease trading, and there is no realistic alternative to using the basis.
A material uncertainty exists, as you concluded.
The disclosure covers the events, the plan and the uncertainty, so it is adequate.
Disclosure is adequate, so the opinion is unmodified.
Add a section headed Material Uncertainty Related to Going Concern. It refers to the note, describes the uncertainty and states that the opinion is not modified in respect of this matter.

Answer: Unmodified opinion with a separate section headed Material Uncertainty Related to Going Concern.

Example 2

A client has losses and negative cash flows. A material uncertainty exists, but the directors' note says only that the company 'faces challenging trading conditions'. It does not mention the uncertainty or the funding position. The effect is material but not pervasive. What opinion do you give?

Show the solution

A material uncertainty exists, so adequate disclosure is needed.
The note does not state that a material uncertainty exists or explain the funding position, so disclosure is inadequate.
Inadequate disclosure means the financial statements are materially misstated.
The misstatement is material but not pervasive, so the opinion is qualified, 'except for'.
Include a Basis for Qualified Opinion section that explains the lack of disclosure and, where practicable, gives the missing information.

Answer: Qualified opinion (except for) because of inadequate going concern disclosure, with a Basis for Qualified Opinion section.

Exam tips

Write the three-question test in the margin of your notes and apply it to every scenario.
Name the exact heading, Material Uncertainty Related to Going Concern, when asked what the report should include.
In Section C, explain why the opinion is or is not modified. Marks go to the reasoning, not just the label.
Look for wording in scenarios such as 'adequately disclosed' or 'no mention in the notes'. It decides the opinion.
Remember that objective test questions are all or nothing, so check qualified versus adverse before you answer.

Going Concern and Material Uncertainty in the Report 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 and Material Uncertainty in the Report: frequently asked questions

What is a material uncertainty related to going concern?

It is a situation where events or conditions may cast significant doubt on the entity's ability to continue as a going concern, and the potential impact is significant. Users need clear disclosure to understand it. The auditor reports it in a separate section of the report.

Does a material uncertainty change the audit opinion?

Not if the going concern basis is appropriate and the uncertainty is adequately disclosed. The opinion stays unmodified and the auditor adds the material uncertainty section. The opinion changes only if disclosure is inadequate or the basis is inappropriate.

What opinion do I give if going concern disclosure is inadequate?

Give a qualified opinion or an adverse opinion. Use qualified if the effect is material but not pervasive. Use adverse if it is material and pervasive.

Is the material uncertainty section the same as emphasis of matter?

No. It has its own heading and its own required content. Do not use an emphasis of matter paragraph for a going concern material uncertainty.