Advanced Audit and Assurance (International) · Auditor's reports

Going Concern Reporting and Material Uncertainty under ISA 570

Updated 11 October 2026 · Fact-checked

Going concern reporting under ISA 570 depends on two things: whether management's use of the going concern basis is appropriate, and whether a material uncertainty exists and is adequately disclosed. Adequate disclosure gives an unmodified opinion with a separate section. Inadequate disclosure gives a qualified or adverse opinion. An inappropriate basis gives an adverse opinion.

Understand Going Concern Reporting and Material Uncertainty

The going concern basis assumes the entity will keep operating for the foreseeable future and will not need to liquidate or stop trading. Management assesses this when preparing the financial statements. The auditor then concludes on 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 as a going concern, and the potential impact is so large that disclosure is needed for the statements to give a true and fair view (or be fairly presented). Examples are loss of a key lender, breached covenants, losses and negative cash flows, or loss of a major customer.

Your reporting answer comes from two decisions. First, is the going concern basis appropriate? If the entity is actually going to cease trading and management still uses the basis, the basis is inappropriate. Second, if the basis is appropriate but a material uncertainty exists, are the disclosures adequate?

There are four outcomes to know:

Basis appropriate, no material uncertainty: normal unmodified report. The going concern wording in the auditor's responsibilities section applies as standard.
Basis appropriate, material uncertainty adequately disclosed: unmodified opinion, plus a separate section headed "Material Uncertainty Related to Going Concern". This refers to the note and says the opinion is not modified.
Basis appropriate, material uncertainty not adequately disclosed: qualified ("except for") or adverse opinion under ISA 705. The basis for opinion section explains the missing or inadequate disclosure.
Basis inappropriate, statements still prepared on the going concern basis: adverse opinion, even if disclosures are made. The exception is where management has properly used an acceptable alternative basis, covered in the last paragraph below.

There are two further points. If management refuses to make or extend its assessment when asked, or the auditor cannot get enough evidence because of a limitation, consider a qualified opinion or a disclaimer under ISA 705. Also, where the going concern basis is inappropriate but management has prepared the statements on an acceptable alternative basis (for example break-up) with adequate disclosure, the opinion is unmodified. An emphasis of matter paragraph is included only if the auditor considers it necessary to draw attention to the alternative basis. The adverse opinion applies where the going concern basis is still used.

Key rules to remember

Basis appropriate, material uncertainty adequately disclosed: Unmodified opinion + separate section "Material Uncertainty Related to Going Concern"; Not a modification. The section must refer to the note and state that the opinion is not modified in respect of the matter.
Basis appropriate, material uncertainty inadequately disclosed: Qualified ("except for") or adverse opinion under ISA 705; Qualified if the effect is material but not pervasive. Adverse if it is material and pervasive. The basis for opinion section must state the uncertainty exists and the statements do not adequately disclose it.
Going concern basis inappropriate: Adverse opinion; Applies when the statements are prepared on the going concern basis but the basis is inappropriate. Disclosure does not cure it. The exception is an acceptable alternative basis with adequate disclosure.
Management unwilling to make or extend assessment: Consider qualified opinion or disclaimer (ISA 705); The auditor asks management to extend its assessment period. If management refuses, this is a scope limitation.
Alternative basis used, adequately disclosed: Unmodified opinion; emphasis of matter only if the auditor considers it necessary to draw attention to the alternative basis; Only if the alternative basis is acceptable in the circumstances and the disclosures are adequate. If the going concern basis is still used, the adverse opinion applies instead.

How to solve Going Concern Reporting and Material Uncertainty questions

Use this order for any going concern reporting requirement. It stops you jumping straight to a modified opinion.

1Identify the events or conditions in the scenario: losses, cash outflows, covenant breaches, lost customers or finance withdrawn.
2Decide whether management's going concern basis is still appropriate. Ask whether the entity is likely to cease trading or has already decided to.
3If the basis is appropriate, decide whether the conditions create a material uncertainty, using the size of the impact and the likelihood of events.
4Read the disclosure in the scenario. Check that it describes the events, management's plans, and states that a material uncertainty exists that may cast significant doubt.
5Match to the outcome: adequate disclosure gives an unmodified opinion with a material uncertainty section. Inadequate disclosure gives a qualified or adverse opinion. An inappropriate basis gives an adverse opinion.
6For a qualified versus adverse choice, judge whether the effect is material or material and pervasive.
7Describe what the report will say: the opinion wording, the basis for opinion section or the material uncertainty section, and the reference to the note.
8Add practical points if asked: further evidence, discussion with those charged with governance and management representations.

Quickest way: Two-question decision

When to use it: Use this when you have a few minutes for a reporting requirement and the scenario gives you the conditions and the disclosure.

Question 1: Is the going concern basis appropriate? If no, write adverse opinion and explain why.
Question 2: If yes, is there a material uncertainty? If no, write unmodified standard report.
If yes, is it adequately disclosed? Yes means unmodified with a material uncertainty section. No means qualified or adverse.
Write one line on the wording of the section or basis for opinion paragraph, and one line linking to the facts in the scenario.

Common mistakes in Going Concern Reporting and Material Uncertainty

Calling the material uncertainty section a modification of the opinion.
Students link any extra paragraph in the report with a modified opinion.
Fix: When the uncertainty is adequately disclosed the opinion stays unmodified. The separate section informs users and states that the opinion is not modified.
Using an emphasis of matter paragraph for a material uncertainty.
Students confuse the two because both are extra paragraphs that draw attention to a disclosure in the financial statements.
Fix: Under ISA 570 a material uncertainty needs its own section headed "Material Uncertainty Related to Going Concern". Emphasis of matter is for other matters already fairly presented.
Giving a qualified opinion when the basis is inappropriate.
Students treat all going concern problems as disclosure problems.
Fix: If the entity will cease trading and the statements still use the going concern basis, the answer is adverse. The effect is pervasive.
Ignoring the quality of disclosure and just saying there is a material uncertainty.
Students stop once they identify the risk and do not read the note in the scenario.
Fix: Check whether the note discloses the events, management's plans and the existence of a material uncertainty. Weak disclosure leads to a modified opinion.
Giving no practical audit response, such as discussing with management or reviewing cash flow forecasts.
The question asks for reporting, so students answer only on the opinion.
Fix: If the requirement is broader, add the evidence the auditor needs before concluding: forecast reliability, support from lenders and management's plans.
Mixing up qualified and adverse.
Students do not apply the pervasiveness test from ISA 705.
Fix: Qualified is material but not pervasive. Adverse is material and pervasive. Explain which applies using the facts.

Worked examples

Example 1

Your client, Kora Ltd, has a bank loan of $4 million due for repayment in four months. The bank has not agreed to renew it. Management has prepared the financial statements on the going concern basis. A note discloses the loan, the lack of renewal, management's plan to seek refinancing, and states that these conditions indicate a material uncertainty that may cast significant doubt on the company's ability to continue as a going concern. You have concluded the going concern basis is appropriate. Explain the implications for the auditor's report.

Show the solution

Condition: a major loan is due and no renewal is agreed. This may create significant doubt about continuing operations.
Basis: you have concluded that the going concern basis is appropriate, so the statements are not adverse on that ground.
Material uncertainty: the scenario describes one, because a failure to refinance could threaten the entity's survival.
Disclosure: the note describes the events, management's plan, and states that a material uncertainty exists. This is adequate.
Report: give an unmodified opinion. Do not qualify it.
Add a separate section headed "Material Uncertainty Related to Going Concern". It refers to the note, states that a material uncertainty exists that may cast significant doubt, and states that the opinion is not modified in respect of this matter.

Answer: Issue an unmodified opinion and include a separate section headed "Material Uncertainty Related to Going Concern" that draws attention to the note and states that the opinion is not modified.

Example 2

Delta Ltd has made losses for three years and has no committed funding beyond the next six months. Management has prepared the statements on the going concern basis. The notes mention the losses but do not state that a material uncertainty exists and do not mention the funding position. The auditor believes the matter is material but not pervasive. What opinion should the auditor give and what must the report include?

Show the solution

Condition: recurring losses and no committed funding beyond six months. These are events that may cast significant doubt on going concern.
Basis: management still expects to continue trading and no decision to cease trading is described, so the basis is appropriate.
Material uncertainty: it exists because the lack of funding could threaten survival.
Disclosure: the notes do not state that a material uncertainty exists and omit the funding position. Disclosure is inadequate.
Opinion: the departure is material. It is not pervasive on the stated facts, so give a qualified ("except for") opinion under ISA 705.
Report: the basis for opinion section must state that a material uncertainty exists and that the financial statements do not adequately disclose this matter. The opinion paragraph uses "except for" wording.

Answer: Give a qualified ("except for") opinion under ISA 705. The basis for opinion section explains the material uncertainty and the inadequate disclosure.

Exam tips

Always state the two decisions: is the basis appropriate, and is the disclosure adequate. Markers look for this logic.
Use the exact heading "Material Uncertainty Related to Going Concern". Do not call it emphasis of matter.
Quote facts from the scenario when you decide whether disclosure is adequate. Generic statements score poorly.
For professional skills marks, write clearly to the audit committee or partner and give a recommendation, not just a list of rules.
If a question asks only for the report, do not spend time on audit procedures. If it asks for the auditor's response, include evidence, discussions with management and representations.

Practice questions from Auditor's reports

Going Concern Reporting and Material Uncertainty 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 Reporting and Material Uncertainty: 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 impact is large enough that users need disclosure. The doubt comes from the size of the potential impact and the likelihood of the events.

Is a material uncertainty a modified opinion?

No, not when it is adequately disclosed. The auditor gives an unmodified opinion and includes a separate section titled Material Uncertainty Related to Going Concern. The opinion is modified only if the disclosure is inadequate or the going concern basis is inappropriate and still used.

When is an adverse opinion given on going concern?

An adverse opinion is given when management uses the going concern basis but the basis is inappropriate. It is also given when disclosure of a material uncertainty is inadequate and the effect is material and pervasive. It does not apply where management has properly used an acceptable alternative basis with adequate disclosure.

What if management will not extend its going concern assessment?

The auditor asks management to extend its assessment to at least twelve months from the date of the financial statements, or to the period required by the applicable framework if longer. If management refuses, the auditor considers the effect on the report, which may mean a qualified opinion or a disclaimer because of a limitation on scope.