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ACCA Strategic Professional · Advanced Audit and Assurance (International)

Subsequent Events and Going Concern for ACCA AAA

Going concern asks if the entity can keep operating. IAS 1 requires management to consider available future information, covering at least (but not limited to) twelve months from the end of the reporting period. ISA 570 (Revised 2024) has the auditor ask management to extend an assessment covering less than twelve months from approval of the financial statements.

What this chapter covers

This chapter covers the last stretch of an audit. You look at events after the reporting date under ISA 560, assess whether the entity is a going concern under ISA 570 (Revised), decide how the audit report changes, and finish with written representations and completion procedures.

The topics link closely. A subsequent event, such as a major customer failing or a loan being called in, often creates a going concern doubt. A going concern doubt then affects disclosure, the audit opinion and the representations you ask management to give. Examiners like scenarios where one fact feeds all of these.

The chapter also connects to the rest of AAA. It draws on risk assessment, evidence, ISA 700 series reporting, and ethics and professional scepticism. In Section A you may be asked to work through the whole completion stage of a case study, and in Section B to answer a focused question on one issue.

Going concern and subsequent events turn up in many AAA scenarios because they test judgement, not recall. You are rewarded for spotting the warning signs in the scenario, choosing relevant procedures, and linking the outcome to the audit report. These are also the points where professional skills marks are earned: scepticism, commercial awareness and clear communication to the partner or the client. A well-structured answer here is easy to practise and repeats across sittings.

Subsequent events and going concern: topics in the order to study them

  1. 1Subsequent Events under ISA 560Start here because it sets the timeline of dates, and later topics build on how events after the year end affect the audit.
  2. 2Going Concern Assessment and Audit ProceduresNext, because you need to know how to assess management's evaluation and gather evidence before you can consider the reporting effects.
  3. 3Going Concern Reporting and Disclosure ImplicationsThis follows because the audit report and disclosure depend on the conclusion you reached from your procedures.
  4. 4Written Representations and Completion ProceduresFinish with this because it pulls together every earlier topic into the final steps before the audit report is signed.

How to prepare Subsequent events and going concern

Prepare this chapter as a chain of cause and effect, not as separate lists. Practise applying it to scenarios.

  1. Learn the three date groups under ISA 560: events up to the date of the auditor's report, facts discovered after that date but before the statements are issued, and facts discovered after issue. Be clear on what the auditor must do in each.
  2. Revise how adjusting and non-adjusting events are treated under IAS 10, so you can tell whether an event needs adjustment or disclosure.
  3. Build a list of going concern indicators (financial, operating and other) and match each to procedures, such as reviewing cash flow forecasts, loan covenants and post year-end trading.
  4. Learn the reporting outcomes: no material uncertainty, adequate disclosure of a material uncertainty, inadequate disclosure, and use of the going concern basis being inappropriate. Link each to the correct opinion and report wording.
  5. Practise writing procedures that are specific to the scenario. Name the document, the source and the purpose, rather than writing general phrases like 'review records'.
  6. Do timed past-style questions. In each answer, state the issue, apply it to the facts, then give a clear conclusion and recommendation.
  7. Finish with written representations and completion: know what they cover, when they are not reliable, and how they fit with the final review and communication with those charged with governance.

Common mistakes in Subsequent events and going concern

  • Treating every post year-end event as an adjusting event.

    Fix: Ask whether the event gives more evidence of a condition that existed at the reporting date. If yes, adjust. If not, consider disclosure.

  • Writing generic going concern procedures.

    Fix: Tie each procedure to a fact in the case, such as a named loan, customer or forecast, and say what you expect to learn.

  • Mixing up the audit opinion outcomes.

    Fix: Learn them as a decision path: is the basis appropriate, is there a material uncertainty, is it adequately disclosed. Then match the opinion.

  • Relying on written representations as the main evidence.

    Fix: Say that representations corroborate other evidence only. If they conflict with other evidence, or management's integrity is in doubt, reconsider reliability.

  • Ignoring the length of the assessment period and management's forecast quality.

    Fix: Check the period covered, the assumptions, the consistency with past performance and the sensitivity to adverse changes.

  • Giving a conclusion with no recommendation or professional skills.

    Fix: End with a clear conclusion, the effect on the audit report and a practical next step, written in a concise professional tone.

Last-day revision: Subsequent events and going concern

  • ISA 560 deals with events after the reporting date up to the date of the auditor's report, and facts found later.
  • Adjusting events give evidence of conditions at the reporting date; non-adjusting events relate to conditions that arose afterwards.
  • The auditor must perform procedures to identify events up to the date of the report that need adjustment or disclosure.
  • If a fact found after the report date would have changed the report, discuss it with management and act as the circumstances require.
  • Management is responsible for assessing going concern; the auditor evaluates that assessment.
  • Indicators include net current liabilities, loan defaults, loss of key customers, negative operating cash flows and legal claims.
  • Key procedures: review forecasts and their assumptions, check covenants and facilities, read post year-end management accounts and board minutes.
  • If a material uncertainty exists and is adequately disclosed, the opinion is unmodified with a separate section on material uncertainty related to going concern.
  • If disclosure of a material uncertainty is inadequate, follow ISA 705 (Revised) and give a qualified (except for) or adverse opinion, depending on pervasiveness. In the Basis for Opinion section, state that a material uncertainty exists and that the financial statements do not adequately disclose this matter.
  • If the statements are prepared on a going concern basis that is inappropriate, give an adverse opinion under ISA 705 (Revised). If management uses an acceptable alternative basis with adequate disclosure, the opinion is unmodified, and the auditor may consider an Emphasis of Matter paragraph (ISA 706 (Revised)) to draw attention to the disclosure.
  • Written representations support other evidence but cannot replace it.
  • Always link the conclusion to the scenario facts and state what the auditor should do next.

Subsequent events and going concern practice questions

Subsequent events and going concern in other exams

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

Subsequent events and going concern: frequently asked questions

What is the difference between subsequent events and going concern?

Subsequent events are things that happen after the reporting date and may need adjustment, disclosure or reporting action. Going concern is about whether the entity can continue operating for the foreseeable future. A subsequent event can create a going concern problem, so you must read them together.

Which ISAs matter most for this chapter?

ISA 560 covers subsequent events and ISA 570 (Revised) covers going concern. ISA 580 covers written representations, and the ISA 700 series covers the audit report. Know how they connect rather than learning each in isolation.

How should I answer a going concern question in the AAA exam?

Read the scenario for indicators, explain why each matters, and suggest specific procedures. Then state the effect on the audit opinion and the disclosure required. Keep the answer in a clear structure to earn professional skills marks.

Can written representations replace audit evidence?

No. They support other evidence but do not replace it. If management refuses to provide requested representations, or they are unreliable, the auditor must consider the effect on the audit opinion.