Going Concern Assessment: A Practical Guide to ISA 570

Few audit conclusions carry as much weight as the going concern assessment. ISA 570 requires auditors to evaluate whether the entity can continue operating for at least 12 months beyond the reporting date — a judgment that can determine the entity's access to capital, credit, and contracts.

Indicators of Going Concern Doubt

ISA 570 identifies three categories of warning signs:

Financial indicators

• Net liability or net current liability position
• Adverse key financial ratios
• Inability to pay creditors on due dates
• Arrears on dividends or discontinuance of dividends

Operating indicators

• Loss of key management without replacement
• Loss of a major market, customer, or supplier
• Labour difficulties or shortages of important supplies

Other indicators

• Non-compliance with capital or other statutory requirements
• Pending legal proceedings that could result in claims the entity cannot satisfy
• Changes in legislation or government policy

The Auditor's Procedures

When doubt exists, ISA 570 requires the auditor to obtain sufficient appropriate evidence about whether a material uncertainty exists by:

1. Requesting management's assessment of going concern
2. Evaluating management's plans for future actions
3. Obtaining written representations regarding plans and feasibility
4. Evaluating whether any additional facts or information have become available since management's assessment

In AssureTwin

Our simulation engine models going concern as a decision gate in the engagement workflow. The FSM tracks whether the auditor has performed all required procedures, and our Z-score analytics provide quantitative support for the assessment.

Browse the full standard: ISA 570 Reference