Auditing and Ethics · Completion and Review

Going Concern under SA 570 (Revised)

Updated 4 October 2026 · Fact-checked

Going concern is the assumption that an entity will continue in business for the foreseeable future. Under SA 570 (Revised), you evaluate management's assessment, look for events or conditions that cast doubt, perform extra procedures, and report based on whether a material uncertainty exists and is adequately disclosed.

Understand Going Concern under SA 570 (Revised)

Financial statements are normally prepared on the going concern basis. This means the entity will keep operating and will not be liquidated or stop trading. Assets are valued on that footing, for example at cost less depreciation, not at forced-sale values.

If the assumption fails, the numbers become misleading. Assets may be worth less and liabilities may fall due sooner. So the auditor must check whether the assumption is appropriate.

Management is responsible for assessing the entity's ability to continue. The auditor is responsible for obtaining sufficient appropriate evidence that management's use of the going concern basis is appropriate, and for concluding whether a material uncertainty exists. The auditor cannot predict the future. The absence of any going concern reference in the report is not a guarantee of the entity's survival.

The key trigger is events or conditions that may cast significant doubt on the entity's ability to continue. These fall into financial, operating and other categories. When you see them, you ask what management plans to do and whether those plans are feasible.

Your reporting then depends on three questions. Is the going concern basis appropriate? Is there a material uncertainty? Is it adequately disclosed? Map each case separately:

Basis appropriate and no material uncertainty: unmodified opinion with no going concern section.
Basis appropriate, material uncertainty exists and is adequately disclosed: unmodified opinion plus a separate section 'Material Uncertainty Related to Going Concern'.
Basis appropriate, material uncertainty exists but disclosure is inadequate: qualified or adverse opinion under SA 705.
Basis inappropriate: adverse opinion.

Key rules to remember

Basis of responsibility: Management assesses; auditor evaluates and concludes; Management prepares the assessment. You evaluate it and conclude on appropriateness of the basis and on material uncertainty.
Financial indicators: Net liability or net current liability position; loans nearing maturity with no realistic renewal or repayment; heavy reliance on short-term borrowings for long-term assets; adverse key ratios; substantial operating losses; negative operating cash flows; arrears or discontinuance of dividends; inability to pay creditors on due dates; inability to comply with loan terms; change from credit to cash-on-delivery with suppliers; inability to finance new product development; Group these as financial indicators in your answer.
Operating indicators: Loss of key management without replacement; loss of a major market, key customer, franchise, licence or principal supplier; labour difficulties; shortage of important supplies; emergence of a highly successful competitor; Group these as operating indicators.
Other indicators: Non-compliance with capital or statutory requirements; pending legal or regulatory proceedings that may result in claims the entity cannot meet; changes in law or government policy expected to affect the entity adversely; uninsured or underinsured catastrophes; Group these as other indicators.
Reporting: basis appropriate, no material uncertainty: Going concern basis appropriate and no material uncertainty → unmodified opinion with no going concern section; This is the plain case. Indicators may have been examined, but if management's plans resolve the doubt, nothing extra goes in the report.
Reporting: appropriate basis, adequate disclosure: Material uncertainty exists and is adequately disclosed → unmodified opinion + separate section 'Material Uncertainty Related to Going Concern'; Do not use an Emphasis of Matter paragraph for this situation. Use the separate section.
Reporting: inadequate disclosure: Material uncertainty exists but disclosure is inadequate → qualified or adverse opinion (SA 705), with a Basis for Qualified (Adverse) Opinion section; Choose qualified or adverse based on how material and pervasive the inadequacy is.
Reporting: basis inappropriate: Going concern basis used but inappropriate → adverse opinion; This applies where management should have used another basis, such as liquidation basis, but did not.
Management unwilling: Management unwilling to make or extend its assessment → consider the implications for the report; if sufficient appropriate evidence cannot be obtained by other procedures, this is a scope limitation under SA 705 → qualified opinion if the possible effects are material but not pervasive; disclaimer of opinion if they are material and pervasive; The auditor asks management to make or extend the assessment. If management refuses, you consider the implications for your report. If other procedures cannot give sufficient appropriate evidence, treat it as a limitation of scope and choose between a qualified opinion and a disclaimer based on the pervasiveness of the possible effects.

How to solve Going Concern under SA 570 (Revised) questions

Use this order for any question on going concern, whether it is a case study or a theory question.

1Identify the facts as events or conditions. Classify each as financial, operating or other indicators.
2State whether together they may cast significant doubt on the entity's ability to continue as a going concern.
3List the procedures: discuss management's assessment, evaluate its plans, check cash flow and other forecasts, review subsequent events, and obtain written representations.
4Evaluate whether management's plans are feasible and likely to improve the position, for example asset sales, debt restructuring or new equity.
5Conclude whether a material uncertainty exists, and whether the going concern basis is appropriate.
6Check the financial statement disclosure of the events, the plans and the uncertainty.
7Decide the report: unmodified with a Material Uncertainty section, qualified or adverse for inadequate disclosure, or adverse if the basis is inappropriate.
8Add communication with those charged with governance (TCWG) about the events, their significance and management's response.

Quickest way: Indicator-to-report ladder

When to use it: Use this for MCQs and for short written answers when time is tight.

For MCQs, ask: is there a material uncertainty, and is disclosure adequate? Adequate disclosure with uncertainty means unmodified opinion plus a separate Material Uncertainty section.
Inadequate disclosure means qualified or adverse. Wrong basis means adverse.
If the option says Emphasis of Matter for a material uncertainty, eliminate it.
For written answers, use three headings: Indicators, Procedures, Reporting. Write each as a short bullet list.
Always add one line on communication with TCWG and one on written representations to pick up easy step marks.

Common mistakes in Going Concern under SA 570 (Revised)

Using an Emphasis of Matter paragraph for a material uncertainty.
Older versions of the standard and general practice used Emphasis of Matter, so students remember that.
Fix: Under SA 570 (Revised), use a separate section titled 'Material Uncertainty Related to Going Concern' when disclosure is adequate.
Saying the auditor is responsible for preparing the going concern assessment.
Students confuse who prepares with who evaluates.
Fix: Write: management makes the assessment; the auditor evaluates it and concludes on appropriateness.
Treating any loss as proof that going concern fails.
Students match indicator lists mechanically.
Fix: Indicators only raise doubt. You then judge management's plans and whether a material uncertainty exists.
Forgetting to look at disclosure when an uncertainty exists.
Students focus on procedures and skip the reporting link.
Fix: Always state whether the financial statements describe the events, the plans and the uncertainty. This decides the opinion.
Skipping an adverse opinion where the going concern basis is inappropriate.
Students think all going concern issues lead to a qualification.
Fix: Remember that if the entity should have used a different basis, such as liquidation, but did not, the opinion is adverse.
Treating a clean report as a guarantee of the entity's survival.
Students confuse reasonable assurance with a guarantee.
Fix: Note that the auditor cannot predict future events. Absence of a going concern reference is not an assurance of future viability.

Worked examples

Example 1

During the audit of Zenith Ltd, you note that it has made continuous losses for three years, its current liabilities exceed current assets, a major bank loan falls due in four months with no renewal agreed, and its biggest customer has stopped ordering. Management has prepared accounts on the going concern basis. Explain what you would do.

Show the solution

Classify the events. Continuous losses and net current liabilities, and a loan nearing maturity without renewal are financial indicators. Loss of the biggest customer is an operating indicator.
Conclude that together they may cast significant doubt on the entity's ability to continue as a going concern, so you must perform additional procedures.
Discuss management's assessment and ask for its plans, such as loan renewal, raising equity, asset sales or finding new customers.
Evaluate whether the plans are feasible. Examine cash flow forecasts and test the assumptions. Obtain evidence such as bank correspondence on renewal and customer order confirmations.
Review subsequent events up to the date of the report, and obtain written representations from management about its plans and their feasibility.
Conclude. If a material uncertainty exists and the notes adequately disclose it, issue an unmodified opinion with a separate section 'Material Uncertainty Related to Going Concern'.
If disclosure is inadequate, issue a qualified or adverse opinion. If the basis is inappropriate, issue an adverse opinion.
Communicate the events, their significance and management's response to those charged with governance.

Answer: Treat the facts as financial and operating indicators of doubt, perform the additional procedures on management's plans, and report according to whether a material uncertainty exists and is adequately disclosed.

Example 2

Following your audit of Rana Ltd, you conclude that a material uncertainty exists about going concern. The notes to the financial statements say nothing about the uncertainty. What opinion do you give and what must the report contain?

Show the solution

Identify the situation: a material uncertainty exists and the going concern basis is used, but the disclosure is not adequate.
Apply SA 570 (Revised) with SA 705: inadequate disclosure requires a qualified or adverse opinion.
Choose between them. If the omission is material but not pervasive, use a qualified opinion ('except for'). If it is material and pervasive, use an adverse opinion.
Include a 'Basis for Qualified (Adverse) Opinion' section stating that a material uncertainty exists and that the financial statements do not adequately disclose this matter.
Do not use the 'Material Uncertainty Related to Going Concern' section in this case, since the disclosure it refers to is missing.
Communicate with those charged with governance about the matter.

Answer: Give a qualified or adverse opinion under SA 705, depending on pervasiveness. Explain in the Basis for Opinion section that the uncertainty exists and the disclosure is inadequate.

Exam tips

Write the three-part structure of Indicators, Procedures and Reporting. It maps neatly to step marks.
Always classify indicators as financial, operating or other, and give two or three examples of each.
In reporting questions, say clearly whether disclosure is adequate. This one fact decides the opinion.
Use the phrase 'Material Uncertainty Related to Going Concern' exactly for the separate section.
In MCQs, eliminate options that use Emphasis of Matter for a material uncertainty. A disclaimer applies only where you cannot obtain sufficient appropriate evidence and the possible effects are material and pervasive, such as management refusing to extend its assessment.

Practice questions from Completion and Review

Going Concern under SA 570 (Revised) in other exams

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

CA FinalFraud, Laws and Regulations, and Going Concern

Going Concern under SA 570 (Revised): frequently asked questions

What is the auditor's main duty under SA 570 (Revised)?

You must obtain sufficient appropriate audit evidence that management's use of the going concern basis is appropriate. You must also conclude whether a material uncertainty exists about the entity's ability to continue.

Is a material uncertainty reported as an Emphasis of Matter?

No. When the uncertainty exists and is adequately disclosed, the report has a separate section titled 'Material Uncertainty Related to Going Concern'. The opinion remains unmodified.

What if management refuses to extend its going concern assessment?

You ask management to make or extend it. If it is unwilling, you consider the implications for your report. If you cannot obtain sufficient appropriate evidence by other procedures, this is a scope limitation under SA 705. You give a qualified opinion if the possible effects are material but not pervasive, and a disclaimer of opinion if they are material and pervasive.

Does the auditor need to look beyond twelve months?

You consider the period management used for its assessment, which is the same period required by the applicable financial reporting framework or by law. If that period is less than twelve months from the balance sheet date, you ask management to extend it to at least twelve months from that date. You also inquire of management about events or conditions beyond that period that may cast significant doubt on the entity's ability to continue.