Advanced Audit and Assurance (International) · Subsequent events and going concern

Going Concern Reporting and Disclosure Implications for the Audit Report

Updated 11 October 2026 · Fact-checked

Going concern reporting is how the auditor's report reflects the going concern conclusion under ISA 570 (Revised). If a material uncertainty exists and is adequately disclosed, you add a Material Uncertainty Related to Going Concern section with an unmodified opinion. If disclosure is inadequate, you give a qualified or adverse opinion.

Understand Going Concern Reporting and Disclosure Implications

Management prepares the financial statements on a going concern basis unless it intends to liquidate or cease trading, or has no realistic alternative. The auditor concludes on whether that 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 magnitude and likelihood of the possible outcome mean disclosure is needed for a fair presentation.

The audit report depends on two questions. First, is the going concern basis appropriate? Second, if there is a material uncertainty, is it adequately disclosed? Your answers lead to one of four outcomes.

Basis appropriate, no material uncertainty: unmodified opinion. No going concern paragraph is needed.
Basis appropriate, material uncertainty exists and is adequately disclosed: unmodified opinion, plus a separate section headed Material Uncertainty Related to Going Concern. It refers to the note and states that the opinion is not modified in respect of the matter.
Basis appropriate, material uncertainty exists but disclosure is inadequate: a qualified (except for) or adverse opinion under ISA 705 (Revised). Which one depends on how material and pervasive the missing disclosure is. The Basis for Opinion section must state that the uncertainty exists and that the financial statements do not adequately disclose it.
Basis inappropriate: if management has used the going concern basis but you conclude it is inappropriate, give an adverse opinion. The effect is ordinarily pervasive, so an adverse opinion is the usual result rather than a qualified one.

In every outcome, the auditor's report describes management's responsibilities and the auditor's responsibilities for going concern.

A material uncertainty paragraph is not a modification of the opinion. Students often mix these up. The opinion is modified for inadequate disclosure, for an inappropriate basis, or for a material limitation on scope, for example where management refuses to make or extend its assessment when asked. In a limitation case, ask management to extend first. If it still refuses, consider a qualified opinion, or a disclaimer where the possible effects are material and pervasive, under ISA 705.

Communication matters as well. Under ISA 570 you must tell those charged with governance (TCWG) about the events or conditions found, whether they constitute a material uncertainty, whether the basis is appropriate, the adequacy of disclosures, and the implications for your report. Where the entity is listed, a matter giving rise to a material uncertainty is by its nature a key audit matter, because it is of most significance. It is reported in the Material Uncertainty Related to Going Concern section, not described in the key audit matters section. The KAM section only refers to that section.

Key rules to remember

Basis appropriate, material uncertainty adequately disclosed: Unmodified opinion + Material Uncertainty Related to Going Concern section; The section refers to the disclosure note. It says the opinion is not modified for this matter.
Basis appropriate, material uncertainty not adequately disclosed: Qualified ('except for') or adverse opinion under ISA 705 (Revised); Choose adverse where the omission is material and pervasive. Explain the inadequacy in the Basis for Opinion section.
Going concern basis inappropriate: Adverse opinion; This applies where management has still prepared the statements on a going concern basis.
Basis appropriate, no material uncertainty: Unmodified opinion, no going concern section; Even so, the report explains management's and the auditor's going concern responsibilities.
Management refuses to assess or extend the assessment period: Consider qualified opinion or disclaimer (ISA 705); Judge by the effect of the limitation on scope. Ask management to extend first.
Test for material uncertainty: Magnitude of potential impact + Likelihood of occurrence → disclosure needed for fair presentation; Applies where events or conditions may cast significant doubt on continuing as a going concern.

How to solve Going Concern Reporting and Disclosure Implications questions

Use this order for any scenario asking what the auditor should do or report about going concern.

1Identify the events or conditions in the scenario, such as losses, negative cash flows, loan defaults, loss of a key customer or licence, or pending litigation.
2State what management has done: its assessment, its plans, the period covered and its disclosure. Note if the period is under twelve months from the approval date.
3Evaluate whether the plans are feasible and whether the outcome is likely to improve the position. Link this to the evidence you have, such as cash flow forecasts, facility letters and support letters.
4Conclude on two points: is the going concern basis appropriate, and does a material uncertainty exist? Give a reason for each.
5Check the disclosure. Is the uncertainty clearly described, with management's plans and a statement that the entity may be unable to realise its assets and discharge its liabilities in the normal course?
6Match your conclusions to the report outcome: unmodified with material uncertainty section, qualified, adverse, or disclaimer. Name the standard (ISA 570 or ISA 705).
7Describe the wording or the effect on the report sections, such as Opinion, Basis for Opinion and the Material Uncertainty section.
8Add communication with TCWG and the written representations you will request, and state your professional skills point, such as scepticism or commercial judgement.

Quickest way: Two-question decision grid

When to use it: Use when time is short and the question asks for the audit report impact of a stated going concern situation.

Ask: is the going concern basis appropriate? If no, write adverse opinion and stop.
If yes, ask: is there a material uncertainty? If no, write unmodified opinion with no going concern section.
If there is, ask: is it adequately disclosed? If yes, write unmodified opinion plus Material Uncertainty section.
If not adequately disclosed, write qualified or adverse, and justify by materiality and pervasiveness.
Close with one sentence on TCWG communication and a request for representations.

Common mistakes in Going Concern Reporting and Disclosure Implications

Calling the material uncertainty section a modified opinion.
Both appear in the report and both alert users, so they feel the same.
Fix: Remember that the opinion is modified for inadequate disclosure, an inappropriate basis, or a material limitation on scope. An adequately disclosed uncertainty gives an unmodified opinion with a separate section.
Using an Emphasis of Matter paragraph for a material uncertainty.
Students recall the older practice and the similar purpose of drawing attention to a note.
Fix: Under ISA 570 (Revised) use the heading Material Uncertainty Related to Going Concern. Emphasis of Matter is for matters appropriately presented or disclosed that are fundamental to users' understanding of the financial statements.
Giving a qualified opinion when the going concern basis is clearly inappropriate.
Students treat any disclosure shortfall as a qualification issue.
Fix: If management has used the going concern basis but it is inappropriate, the effect is ordinarily pervasive. Give an adverse opinion.
Concluding on the report without assessing the evidence on management's plans.
Students jump to the outcome after spotting indicators.
Fix: Discuss feasibility of plans, forecasts, assumptions and support from lenders or parent companies before concluding. Marks go to application.
Forgetting communication with TCWG.
Students focus on the report wording and treat communication as optional.
Fix: State that you must communicate the events, your conclusion on the basis and uncertainty, disclosure adequacy and the report implications.
Placing a material uncertainty in key audit matters.
Students see the significance of the issue and assume it belongs in the KAM section.
Fix: Report it in the dedicated section. It is a matter of most significance, but it is dealt with in its own section, and the KAM section cross-refers to that section rather than describing the matter.

Worked examples

Example 1

Zephyr Ltd has a bank loan of $12 million due for repayment in four months. Management's forecasts show the company cannot repay unless it refinances, and negotiations with the bank are ongoing but not concluded. Note 4 to the financial statements clearly describes the facts, management's plans and states that a material uncertainty exists which may cast significant doubt on the company's ability to continue as a going concern. The financial statements are prepared on a going concern basis. Advise on the audit report.

Show the solution

Events: a large loan falls due soon and cash cannot cover it. This is an indicator of going concern doubt.
Management's plan is refinancing. It is not yet agreed, so the outcome is uncertain and not within management's control.
Going concern basis: management has a realistic plan being pursued and no intention to liquidate, so the basis remains appropriate.
Material uncertainty: the magnitude is significant and the likelihood of refinancing failing cannot be dismissed. A material uncertainty exists.
Disclosure: Note 4 describes the facts, plans and uncertainty clearly, so it is adequate.
Report: give an unmodified opinion and add a section headed Material Uncertainty Related to Going Concern that refers to Note 4 and states that the opinion is not modified in respect of this matter.
Communicate with TCWG about the conditions, the conclusion and the report implications, and obtain written representations on management's plans.

Answer: Unmodified opinion with a Material Uncertainty Related to Going Concern section referring to Note 4. The opinion is not modified because the basis is appropriate and the uncertainty is adequately disclosed.

Example 2

Boreal plc's lender has withdrawn its facility and the directors have no alternative funding. They have prepared the financial statements on a going concern basis and disclose nothing about going concern. You conclude the company cannot continue for the next twelve months. Explain the audit opinion and your communication.

Show the solution

Events: the facility has been withdrawn and there is no replacement funding. This is a major indicator.
Conclusion: on this evidence the company cannot continue, so the going concern basis is inappropriate.
Management has still used the going concern basis, so the financial statements are materially misstated. The effect is ordinarily pervasive, and it is here, because assets, liabilities and classification would all differ on a break-up or other basis.
Opinion: because management has still used the going concern basis, give an adverse opinion under ISA 705 (Revised). Because the effect is pervasive, a qualified opinion would be insufficient.
Report: the Basis for Adverse Opinion section explains that the going concern basis is inappropriate and the financial statements should have been prepared on another basis. No separate Material Uncertainty section is used here.
Alternative scenario: if management had instead properly prepared the statements on an alternative basis, such as break-up, with adequate disclosure, the opinion may be unmodified, possibly with an Emphasis of Matter paragraph. The adverse opinion applies only because the going concern basis was still used.
Communication: tell TCWG the events found, your conclusion that the basis is inappropriate, the lack of disclosure and the effect on the report. Ask them to reconsider the basis of preparation before the statements are approved.

Answer: Adverse opinion, because the going concern basis is still used, is inappropriate, and the effect is pervasive. If management properly prepared on an alternative basis with adequate disclosure, the opinion may be unmodified, possibly with an Emphasis of Matter paragraph. You communicate this to TCWG and give them the opportunity to revise the financial statements.

Exam tips

Draw the two-question grid on your plan before writing. It prevents confusion between the section and a modified opinion.
Always justify the choice between qualified and adverse by referring to materiality and pervasiveness. A bare conclusion earns few marks.
Use the exact heading Material Uncertainty Related to Going Concern and say the opinion is not modified.
Apply the facts: name the indicators, the plans and the evidence. Professional skills marks reward scepticism about management's optimism.
Add TCWG communication and written representations in one sentence each. These are easy marks.

Practice questions from Subsequent events and going concern

Going Concern Reporting and Disclosure 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 Reporting and Disclosure Implications: frequently asked questions

What is the difference between a material uncertainty and a modified opinion?

A material uncertainty section is added to an unmodified opinion when the uncertainty is adequately disclosed. A modified opinion, which is qualified or adverse, applies when disclosure is inadequate or the going concern basis is inappropriate.

When do you give an adverse opinion on going concern?

You give an adverse opinion when management uses the going concern basis but you conclude it is inappropriate. You may also give one when a material uncertainty is not disclosed and the omission is material and pervasive.

Can an unmodified opinion include a going concern paragraph?

Yes. If a material uncertainty exists and is adequately disclosed, the opinion is unmodified. You add a separate section headed Material Uncertainty Related to Going Concern that refers to the note.

What must the auditor tell those charged with governance about going concern?

You communicate the events or conditions identified, whether they amount to a material uncertainty, whether the going concern basis is appropriate, the adequacy of related disclosures, and the implications for the audit report.