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

During the audit of Delta Printing Co, the auditor identifies that the entity has lost its largest customer and has breached a loan covenant. Management refuses to make or extend its going concern assessment, saying it is unnecessary. Under ISA 570 (Revised), what should the auditor do?

The auditor should ask management to make the assessment and, if it refuses, consider the effect on the auditor's report, performing alternative procedures where possible. Management is responsible for the assessment, so the auditor cannot prepare it, and a refusal may lead to a qualified opinion or disclaimer.

  1. AWithdraw immediately without considering any further procedures
  2. BRequest management to make its assessment, and if it refuses, consider the implications for the audit report and perform alternative procedures where possibleCorrect
  3. CPrepare the going concern assessment on behalf of management and include it in the financial statements
  4. DIgnore the refusal and issue an unmodified opinion because the auditor's own work shows no issues

Explanation

If management is unwilling to make or extend its assessment, ISA 570 (Revised) requires the auditor to request it to do so. If it refuses, the auditor considers the effect on the report, which may be a qualified opinion or disclaimer where the limitation prevents sufficient evidence, and may be able to perform other procedures. The auditor cannot prepare the assessment, as that is management's responsibility, and ignoring the refusal is wrong.

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