(Ref: Para. 1)

In addition to the matters addressed by this ASA, ASA 701^[14] deals with the auditor’s responsibility to communicate key audit matters in the auditor’s report. That ASA acknowledges that, when ASA 701 applies, the following are, by their nature key audit matters:^[15]

• A material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern; or
• When significant judgements were made by management in concluding that there is no material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

However, in such circumstances, the implications for the auditor’s report are in accordance with this ASA.

For audits of financial reports of listed entities, when the auditor concludes, based on the audit evidence obtained, that no material uncertainty exists, and significant judgements were made by management in concluding that there is no material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, this ASA requires the auditor to disclose under the heading of “Going Concern” within the auditor’s report how the auditor evaluated management’s assessment of the entity’s ability to continue as a going concern.

Considerations Specific to Public Sector Entities (Ref: Para. 2)

Management’s use of the going concern basis of accounting is also relevant to public sector entities. For example, International Public Sector Accounting Standard (IPSAS) 1 addresses the issue of the ability of public sector entities to continue as going concerns.^[16] Going concern risks may arise, but are not limited to, situations where public sector entities operate on a for-profit basis, where government support may be reduced or withdrawn, or in the case of privatisation. Events or conditions that may cast significant doubt on an entity’s ability to continue as a going concern in the public sector may include situations where the public sector entity lacks funding for its continued existence or when policy decisions are made that affect the services provided by the public sector entity.

Responsibilities of Management (Ref: Para. 3)

The circumstances in which entities prepare financial reports on a going concern basis of accounting may vary. For example, AASB 101 explains that those circumstances could range from when an entity has a history of profitable operations and ready access to financial resources, to when management may need to consider a wide range of factors relating to current and expected profitability, debt repayment schedules and potential sources of replacement financing before it can satisfy itself that the going concern basis is appropriate.^[17]

(Ref: Para. 10)

The applicable financial reporting framework may or may not explicitly use the term “material uncertainty” when describing the uncertainties that are required to be disclosed in the financial report related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. For example, the term “material uncertainty” is used in AASB 101 and IPSAS 1. In some other financial reporting frameworks, the term “significant uncertainty” is used in similar circumstances. The auditor is required by paragraph 31 to conclude whether a material uncertainty exists regardless of whether or how the applicable financial reporting framework defines a “material uncertainty.” The applicable financial reporting framework may also not define or describe the term “may cast significant doubt” or may use other terms or phrases.

Plans for future actions may include, for example, that management realises assets sooner than originally intended or obtains alternative or additional sources of liquidity to support the entity’s ability to continue as a going concern (also see paragraphs 26–28). In such circumstances, the timing of the events or conditions giving rise to the uncertainty may also be relevant. For example, the shorter the time period in which management must take action, the more significant the uncertainty may be about the entity’s ability to continue as a going concern.

Events or Conditions That May Cast Significant Doubt on the Entity’s Ability to Continue as a Going Concern (Ref: Para. 11)

Some events or conditions may not cast significant doubt when considered individually, however when considered collectively with other events or conditions they may cast significant doubt on the entity’s ability to continue as a going concern.

In certain circumstances, the auditor may identify fraud risk factors arising from events or conditions that may cast significant doubt on the entity's ability to continue as a going concern that are relevant to the identification and assessment of the risks of material misstatement due to fraud in accordance with ASA 240.^[18]

Risk Assessment Procedures and Related Activities (Ref: Para. 11–12)

ASA 315 contains requirements and guidance regarding the auditor’s responsibility to obtain an understanding of the entity and its environment, the applicable financial reporting framework, and the entity’s system of internal control, and the identification and assessment of the risks of material misstatement whether due to fraud or error. The requirements and guidance in this ASA refer to, or expand on, what is required by ASA 315 relevant to identifying events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. 

The risk assessment procedures and related activities assist the auditor in determining whether management’s use of the going concern basis of accounting is likely to be an important issue and its impact on planning the audit. In particular, when performing risk assessment procedures, such as those required by paragraphs 11–12, the auditor may identify information about certain events or conditions that, when considered individually or collectively, indicate that there are events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. These procedures also allow for more timely discussions with management, including a discussion of management’s plans for future actions and resolution of any identified going concern issues when events or conditions are identified that may cast significant doubt on the entity’s ability to continue as a going concern. The auditor uses professional judgement to determine the nature and extent of the risk assessment procedures to be performed to meet the requirements of this ASA.

ASA 315^[19] requires the auditor to design and perform risk assessment procedures in a manner that is not biased towards obtaining audit evidence that may be corroborative or towards excluding audit evidence that may be contradictory. Designing and performing risk assessment procedures in an unbiased manner may assist the auditor in identifying potentially contradictory information. This may assist the auditor in maintaining professional scepticism when identifying whether the events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern give rise to a risk of management bias in the preparation of the financial report (also see paragraphs A68–A71).

The following are examples of risk assessment procedures that may be relevant:

The auditor may also use automated tools and techniques when designing and performing risk assessment procedures as required by paragraph 11.

Scalability (Ref: Para. 11–12)

The nature and extent of the auditor's risk assessment procedures may vary based on the nature and circumstances of the entity. 

The following considerations may be relevant for smaller or less complex entities:

• The size of an entity may affect its ability to withstand adverse conditions. Smaller entities may be able to respond quickly to exploit opportunities, but may lack reserves to sustain operations.
• Conditions of particular relevance to smaller entities include the risk that banks and other lenders may cease to support the entity, as well as the possible loss of a principal supplier, major customer, key employee, or the right to operate under a license, franchise or other legal agreement.

Obtaining an Understanding of the Entity and Its Environment, the Applicable Financial Reporting Framework and the Entity’s System of Internal Control

The Entity and Its Environment (Ref: Para. 12(a), 12(c))

The entity’s business model, objectives, strategies and related business risks may give rise to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. Some business risks may be so significant that they have implications for the conclusion as to the appropriateness of the entity’s use of the going concern basis of accounting and whether a material uncertainty exists.

Management will likely use information available about the future as well as historical information from internal and external sources when identifying events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. Obtaining an understanding of the measures used, internally or externally, may highlight unexpected results or trends that may be indicative of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

The Applicable Financial Reporting Framework (Ref: Para. 12(d), 12(e))

Obtaining an understanding of the requirements of the applicable financial reporting framework provides the auditor with information about the recognition, measurement and presentation criteria in the applicable financial reporting framework, and how they apply in the preparation of the financial report under the going concern basis of accounting. The applicable financial reporting framework may also include disclosure requirements about the significant judgements and assumptions management makes in concluding whether or not there is a material uncertainty related to going concern. Law or regulation may also include disclosure and other detailed requirements when preparing a financial report on the going concern basis of accounting.

The nature, extent, timing and frequency of management’s assessment of the entity’s ability to continue as a going concern may vary from entity to entity. In some entities, management may make assessments of the entity’s ability to continue as a going concern more frequently as part of ongoing monitoring, while in other entities it may be made on an annual basis. If such an assessment has not yet been performed, the auditor may obtain an understanding of the basis for the intended use of the going concern basis of accounting through discussion with management and enquire of management whether events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern.

Considerations Specific to Public Sector Entities (Ref: Para. 12(d), 12(e))

In some jurisdictions the applicable financial reporting framework may include specific guidance for public sector entities in relation to going concern that is relevant to management’s assessment of the entity’s ability to continue as a going concern. For example, such guidance may recognise the relevance of considering the ongoing nature of government programs to certain public sector entities and the presumption of continuation of public services and associated government funding to deliver these programs.

The Entity’s System of Internal Control (Ref: Para. 12(f), 12(h), 12(i))

Obtaining an understanding of the oversight by those charged with governance may be particularly important when the assessment of the entity's ability to continue as a going concern:

• Requires significant judgement by management to assess whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern; or
• Is complex to make, for example, because of the use of multiple data sources or assumptions with complex interrelationships.

The effectiveness of management’s assessment of the entity’s ability to continue as a going concern may be influenced by the oversight exercised by those charged with governance. The auditor may obtain an understanding of whether those charged with governance:

• Have the skills or knowledge to understand the appropriateness of the method used by management in assessing the entity’s ability to continue as a going concern.
• Have the skills or knowledge to understand whether management’s assessment of the entity’s ability to continue as a going concern has been made in accordance with the requirements of the applicable financial reporting framework.
• Are independent from management, have the information required to evaluate on a timely basis how management made the assessment of the entity’s ability to continue as a going concern, and the authority to call into question management’s actions when those actions appear to be inadequate or inappropriate.
• Oversee management’s process for making the assessment of the entity’s ability to continue as a going concern.

Aspects that may be relevant to the auditor’s understanding of how management determines the relevant method, significant assumptions and data may include:

• The basis for management’s selection of the method, assumptions and data used in assessing the entity’s ability to continue as a going concern; and
• If alternative methods, assumptions or data were considered by management, including:
  • How management determines that the assumptions are relevant and complete.
  • How management determines the relevance, accuracy and completeness of the data used in the assessment.

If management has changed its method for assessing the entity’s ability to continue as a going concern from the prior period, considerations may include whether the new method is, for example, more appropriate, is itself a response to changes in the environment or circumstances affecting the entity, or to changes in the requirements of the applicable financial reporting framework or regulatory environment, or whether management has another valid reason. If management has not changed its method for assessing the entity’s ability to continue as a going concern, considerations may include whether the continued use of the previous method, significant assumptions and data is appropriate in view of the current environment or circumstances.

The disclosures related to the entity’s ability to continue as a going concern may contain information that is obtained from other supporting records and information from outside of the general and subsidiary ledgers (e.g., information produced by an entity’s risk management system about hedging strategies or sensitivity analysis derived from financial models that demonstrate management has considered alternative assumptions). As part of obtaining an understanding of the entity's system of internal control, the auditor may consider how management determines the appropriateness of such information used to develop the disclosures related to the entity’s ability to continue as a going concern.

Remaining Alert Throughout the Audit for Information about Events or Conditions (Ref: Para. 13)

As explained in ASA 315,^[20] obtaining an understanding of the entity and its environment, the applicable financial reporting framework and the entity’s system of internal control is a dynamic and iterative process of gathering, updating and analysing information and continues throughout the audit. Therefore, the auditor’s determination of whether events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern may change as new information is obtained.

ASA 315 requires the auditor to revise the auditor’s identification or assessment of the risks of material misstatement if the auditor obtains new information which is inconsistent with the audit evidence on which the auditor originally based the identification or assessment of risk.^[21] If events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern are identified after the auditor’s risk identification or assessments are made, in addition to performing the procedures in this ASA, the auditor’s identification or assessment of the risks of material misstatement may need to be revised.

The auditor may also become aware of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern from:

• External information sources (e.g., publicly available information of the entity’s financial performance by external parties, such as information about short-selling of shares, industry or macro-economic forward-looking information such as economic or earnings forecasts).
• Other engagements performed for the entity (e.g., an agreed-upon procedures engagement).
• The auditor’s consideration of the other information in accordance with ASA 720.^[22]

Considerations Specific to Public Sector Entities (Ref: Para. 13)

In the public sector some entities may have broader responsibilities to publicly report beyond the preparation of the financial report which may provide the auditor information about events or conditions that may cast significant doubt on an entity’s ability to continue as a going concern. For example, in certain jurisdictions public sector entities may be required to report on long-term fiscal sustainability of a public sector entity’s finances and the auditor may have additional responsibilities established by law or regulation with respect to such information. In such cases, the auditor may become aware of long-term fiscal sustainability concerns that may be indicative of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

Events or Conditions not Previously Identified or Disclosed by Management (Ref: Para. 14)

If the auditor identifies events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern that management failed to identify or disclose to the auditor, this may constitute a deficiency in internal control. ASA 265^[23] deals with the auditor’s responsibility to communicate appropriately to those charged with governance and management deficiencies in internal control that the auditor has identified in an audit of a financial report.

When management has intentionally failed to identify or disclose to the auditor events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, this may raise doubts about their integrity and honesty, such as when the auditor suspects an intention to mislead. ASA 240 provides further requirements and guidance in relation to the identification and assessment of the risks of material misstatement due to fraud.^[24]

Control Deficiencies Within the Entity’s System of Internal Control (Ref: Para. 15)

When the auditor identifies one or more control deficiencies with respect to management’s assessment of going concern, ASA 265 requires the auditor to determine whether, individually or in combination, the deficiencies in internal control constitute a significant deficiency. Matters the auditor may consider in determining whether a significant deficiency in internal control exists related to management’s assessment of going concern may include:

• Absence of a process established by management to identify, assess and address events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.
• Ineffective oversight by those charged with governance over management’s assessment of the entity’s ability to continue as a going concern.
• Evidence that management has failed to identify or disclose events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

Requesting Management to Make an Assessment (Ref: Para. 16)

When management is unwilling to make an assessment of the entity’s ability to continue as a going concern, even when the financial reporting framework does not include an explicit requirement to do so, the auditor may consider management’s lack of assessment as a limitation on the audit evidence the auditor has obtained. In accordance with ASA 705, when the possible effects on the financial report of the inability to obtain sufficient appropriate audit evidence are pervasive, the auditor disclaims an opinion.

Management’s Assessment and Supporting Analysis and the Auditor’s Evaluation (Ref: Para. 17)

Management’s assessment of the entity’s ability to continue as a going concern is a key part of the auditor’s evaluation whether:

• Management’s use of the going concern basis of accounting in the preparation of the financial report is appropriate; and
• A material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

It is not the auditor’s responsibility to rectify a lack of analysis by management. In some circumstances, however, a less extensive analysis by management to support its assessment may not prevent the auditor from concluding whether management’s use of the going concern basis of accounting is appropriate in the circumstances. For example, when the entity has profitable operations and there are no liquidity concerns, and the entity's risk assessment process has not identified events or conditions that may cast significant doubt on the entity's ability to continue as a going concern, the method, assumptions and data used by management to make its assessment may be less extensive. However, in situations when, in the auditor’s professional judgement, management has not performed an appropriate assessment based on the nature and circumstances of the entity, this may be an indicator of a deficiency in internal control in accordance with ASA 265.

Considerations Specific to Public Sector Entities (Ref: Para. 17)

For certain public sector entities that are able to draw upon government assistance, management’s assessment of going concern may not always be based on solvency or liquidity tests and other factors may be more relevant when the auditor evaluates the entity’s ability to continue as a going concern. For example, the absence of a change in government policy in the assessment period may be more relevant when determining whether continued funding is likely to be secured to enable the entity to realise its assets and discharge its liabilities in the normal course of business and continue its operations for the foreseeable future.

Obtaining Audit Evidence in an Unbiased Manner (Ref: Para. 18)

Obtaining audit evidence in an unbiased manner may involve obtaining evidence from multiple sources within and outside the entity. However, the auditor is not required to perform an exhaustive search to identify all possible sources of information to be used as audit evidence.

Method, Significant Assumptions and Data Used in Management’s Assessment (Ref: Para. 19)

The method, significant assumptions and data used by management in its assessment of the entity’s ability to continue as a going concern support the judgements made by management about the appropriateness of the use of the going concern basis of accounting in the preparation of the financial report and whether a material uncertainty exists.

Method (Ref: Para. 19(a))

“Method” refers to the approach taken by management to assess the entity’s ability to continue as a going concern. A method may be based on using qualitative or quantitative information and involves applying assumptions and data, and taking into account a set of relationships between them.

Matters that may be relevant to the auditor’s evaluation of whether the method selected is appropriate in the context of the applicable financial reporting framework and, if applicable, the appropriateness of changes from the prior period may include:

• Whether management’s rationale for the method selected is appropriate;
• When management has determined that different methods result in significantly different outcomes, how management has investigated the reasons for these differences; and
• Whether the changes are based on new circumstances or new information. When this is not the case, the changes may not be reasonable or may be an indicator of possible management bias (also see paragraphs A68–A71).

Matters that may be relevant to the auditor’s evaluation of whether calculations are mathematically accurate may include whether management has provided adequate explanations for advanced or complex calculations or processing steps (e.g., multiple formulas or macros).

Significant Assumptions (Ref: Para. 19(b))

Considerations for the auditor’s evaluation regarding the significant assumptions on which management’s assessment is based may include:

• Management’s rationale for the selection of the assumptions;
• Whether the assumptions used are consistent with those used in other areas of the entity’s business activities, for example, business prospects, assumptions in strategy documents and assumptions used in making accounting estimates;
• Whether the assumptions used by management in the prior period were reasonable, for example, by comparing the prior year assumptions to the actual outcomes in the current year.
• Whether management considered alternative assumptions to determine the effect of changes in the assumptions on the data used in making the assessment, for example, performing a sensitivity analysis including ‘pessimistic’ and ‘optimistic’ scenarios; and
• Whether a change from prior periods in selecting an assumption is based on new circumstances or new information. When this is not the case, the change may not be reasonable or may be an indicator of possible management bias (also see paragraphs A68–A71).

Data (Ref: Para. 19(c))

Matters that may be relevant to the auditor’s evaluation of whether the data is relevant and reliable may include, for example, management’s rationale for selection of the data, how management evaluated whether the data is appropriate, the source of the data, or whether and how the integrity of the data has been maintained through all stages of information processing.

When using information produced by the entity, ASA 500^[25] requires the auditor to evaluate whether the information is sufficiently reliable for the auditor’s purposes, including as necessary in the circumstances, to obtain audit evidence about the accuracy and completeness of the information and evaluating whether the information is sufficiently precise and detailed for the auditor’s purposes.

Considerations for the auditor’s evaluation of whether the data is appropriate in the context of the applicable financial reporting framework, and, if applicable, the appropriateness of changes from the prior period, may include:

• Whether the data used is consistent with data used elsewhere by management in the preparation of the financial report;
• Whether modifications made to the data are appropriate and supported by management’s rationale; and
• Whether a change from prior periods in the sources or items of data selected is based on new circumstances or new information. When this is not the case, the change may not be reasonable or may be an indicator of possible management bias (also see paragraphs A68–A71).

Scalability (Ref: Para. 19) 

The nature and extent of the auditor’s procedures may vary depending on the method, significant assumptions and data used by management to assess the entity’s ability to continue as a going concern as well as the nature and circumstances of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

Period Beyond Management’s Assessment (Ref: Para. 20)

The auditor remains alert to the possibility that there may be known events, scheduled or otherwise, or conditions that will occur beyond the period of assessment used by management that may bring into question the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial report. The degree of uncertainty associated with the outcome of an event or condition increases when the event or condition is further into the future.

Other than enquiry of management, the auditor does not have a responsibility to perform any other audit procedures to identify events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern beyond the period assessed by management, which, as required by paragraph 21, would be at least twelve months from the date of approval of the financial report.

When events or conditions have been identified in the period beyond management’s assessment, depending on the nature and circumstances of such events or conditions, the auditor may consider requesting management to revise the period of assessment for example, by extending it beyond twelve months from the date of approval of the financial report.

Requesting Management to Extend Its Assessment (Ref: Para. 21)

Most financial reporting frameworks requiring an explicit management assessment about going concern specify the minimum period for which management is required to take into account all available information.^[26] Paragraph 21 requires the auditor to request management to extend its assessment period if that period covers less than twelve months from the date of the approval of the financial report. This requirement also applies when the applicable financial reporting framework does not specify the period to be covered by management’s assessment of the entity’s ability to continue as a going concern.

The date of approval of the financial report for purposes of the ASAs is the date on which those with the recognised authority determine that all the statements that comprise the financial report, including the related notes, have been prepared and that those with the recognised authority have asserted that they have taken responsibility for the financial report.^[27] The applicable financial reporting framework may use other terms to describe the “date of approval of the financial report.”^[28]

The auditor may also wish to discuss with management at an early stage of the audit the expected date of approval of the financial report to assist the auditor in complying with the requirement in paragraph 21. To avoid misunderstandings, the auditor may also include in the engagement letter reference to the expectation that management’s assessment of the entity’s ability to continue as a going concern covers at least twelve months from the date of approval of the financial report.^[29]

Certain entities, for example public sector entities, that are dependent on continued government funding will ordinarily not have certainty of funding beyond the annual budget cycle of governments. Management will therefore need to make assumptions about securing continued funding so that management’s assessment covers a period of at least twelve months from the date of approval of the financial report. In such circumstances the absence of information about a change of government policy may be relevant to the auditor’s evaluation of the appropriateness of these assumptions.

Management Unwilling to Extend its Assessment (Ref: Para. 22–23)

An unwillingness by management to extend its assessment may be a limitation on the audit evidence the auditor is seeking to obtain about the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial report. Accordingly, the auditor is required to discuss the matter with management, and where appropriate, with those charged with governance, and enquire as to the reasons for management’s decision.

Where management has chosen not to extend the period of assessment, management and those charged with governance may be able to provide additional information to support the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial report. For example, this may be the case when the entity has profitable operations and has no liquidity concerns, and management or those charged with governance have not identified any events or conditions that may cast significant doubt beyond the period of assessment they have chosen.

The level of detail and the formality of management’s process to extend its assessment of the entity’s ability to continue as a going concern to at least twelve months from the date of approval of the financial report may vary from entity to entity. In some entities, management may prepare an assessment of the entity’s ability to continue as a going concern, supported by detailed analysis, more frequently as part of its ongoing monitoring. In other cases, management may update its assessment from the date of the financial report to the date of approval of the financial report through less formal means. As explained in paragraph A35 a less extensive analysis by management to support its assessment may not prevent the auditor from concluding whether management’s use of the going concern basis of accounting is appropriate in the circumstances.

If the auditor is unable to obtain sufficient appropriate audit evidence that supports the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial report, as a result of management’s decision not to extend its assessment, the auditor may conclude that it is appropriate to:

• Revise the assessment of the risks of material misstatement and modify planned audit procedures in accordance with ASA 315.^[30] For example, if management’s decision is unreasonable in the circumstances, this may indicate a fraud risk factor that requires evaluation in accordance with ASA 240.
• Consider management’s unwillingness to extend its assessment as a limitation on the audit evidence the auditor has obtained. In accordance with ASA 705, when the possible effects on the financial report of the inability to obtain sufficient appropriate audit evidence are pervasive, the auditor disclaims an opinion.

Information Used in Management’s Assessment (Ref: Para. 25)

Paragraphs 20, A27, A30–A31 and A66 describe circumstances that are relevant when it may be necessary for the auditor to request management to revise its assessment.

(Ref: Para. 26–28)

Management’s plans for future actions may mitigate the significance of identified events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. Such plans for future actions, may include plans to liquidate assets, borrow money or restructure debt, reduce or delay expenditures, or increase capital. 

The nature and extent of audit evidence to be obtained about management’s intent and ability is a matter of professional judgement. The auditor’s procedures to evaluate management’s plans for future actions may include:

• Enquiry of management about its reasons for a particular course of action.
• Evaluating responses to enquiries of management about the ability to carry out a particular course of action given the entity’s economic circumstances, including the implications of its existing commitments and legal, regulatory or contractual restrictions that could affect the feasibility of management’s actions.
• Evaluating responses to enquiries of management or those charged with governance with audit evidence from sources within or outside the entity.
• Inspecting information about management’s history of carrying out its stated intentions.
• Inspecting written plans and other documentation, including, when applicable, formally approved budgets, authorisations or minutes.
• Inspecting records and documents for support of any planned disposals of assets.
• Inspecting reports of regulatory actions.
• Inspecting correspondence with lenders and finance providers that could affect the feasibility of management’s plans to carry out further actions.
• Evaluating the consistency of significant assumptions in management’s plans with those used in other accounting estimates, or with related assumptions used in other areas of the entity’s business activities,
• Reviewing events occurring subsequent to the date of the financial report and up to the date of the auditor’s report to identify those that either mitigate or otherwise affect the entity’s ability to continue as a going concern.
• Confirming the existence, legality and enforceability of arrangements to provide or maintain financial support with third parties or related parties, including the entity’s owner-manager and evaluating the financial ability of such parties to provide additional funds.
• When prospective financial information is relevant, performing analytical procedures by comparing:
  • The prospective financial information for recent prior periods with historical results; and
  • The prospective financial information for the current period with results achieved to date.
• When management’s plans for future actions are based on information from internal sources, comparing to information from reputable independent sources external to the entity.

In certain circumstances the auditor may consider requesting an external confirmation^[31] of the existence and terms of borrowing facilities between the entity and external finance providers.

Some finance providers may be reluctant to confirm in writing to an entity or their auditor that borrowing facilities will be renewed. When management’s plans for future actions are based on arrangements to maintain or secure borrowing facilities from external finance providers, the lack of an external confirmation may be a limitation on the audit evidence the auditor is seeking to obtain. In such circumstances, the auditor may consider making enquiries of external finance providers with respect to borrowing facilities, including information about the rationale for their reluctance to confirm in writing that borrowing facilities will be renewed and whether such rationale is specific to the circumstances of the entity. The auditor may also need to enquire of management as to whether there are alternative strategies or sources of financing that may mitigate the significance of identified events or conditions that may cast significant doubt on the entity's ability to continue as a going concern. If alternative strategies or sources of financing are not available, then a material uncertainty may exist.

Financial Support by Third Parties or Related Parties, Including the Entity’s Owner-Manager 

Intent (Ref: Para. 28)

Where management’s plans for future actions include financial support by third parties or related parties, including the entity’s owner-manager, whether through the subordination of loans, commitments to maintain or provide additional funding, or guarantees, and such financial support is important to an entity’s ability to continue as a going concern, the auditor may need to consider requesting written confirmation from such parties to obtain sufficient appropriate audit evidence about their intent to provide the necessary financial support. Such written confirmation may be in paper form, or by electronic or other medium^[32] and may include:

• Terms and conditions of the commitment from those parties.
• When applicable, the legality and enforceability of the commitments.
• The period or the specific date to which the parties intend to provide the financial support.

Ability (Ref: Para. 28)

The auditor’s procedures to obtain sufficient appropriate audit evidence about the ability of the third parties or related parties, including the entity’s owner-manager, to provide the financial support may include:

• Enquiries about the business rationale for the financial support and the basis on which such support is established (e.g., entity’s business plans or other forecasts).
• Enquiries about the ability to provide the financial support in a timely manner for the entity to meet its obligations.
• Enquiries of others, such as external or internal legal counsel, or the auditor of the financial report of a related party in a group audit engagement who may have relevant knowledge and information about the ability of third parties or related parties, including the entity’s owner-manager, to provide the financial support.
• Inspecting the records of past financial support provided by the parties when such support was needed.
• Inspecting the latest available audited financial report or other supporting information to obtain audit evidence about the financial position of the parties to provide the necessary financial support to the entity.

Scalability (Ref: Para. 28)

Financial support by an entity’s owner-manager is often important to the ability of smaller or less complex entities to continue as a going concern. Where a smaller or less complex entity is largely financed by a loan from the owner-manager, it may be important that these funds are not withdrawn.

(Ref: Para. 29)

ASA 560 requires the auditor to respond appropriately to facts that become known to the auditor after the date of the auditor’s report but before the date the financial report is issued, that, had they been known to the auditor at the date of the auditor’s report, may have caused the auditor to amend the auditor’s report.^[33] For example, this may be the case when the auditor is aware of a significant delay between the date of the auditor’s report and the date the financial report will be issued, and the auditor determines that such delay is related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

(Ref: Para. 30–31)

If the auditor is unable to obtain sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial report, in accordance with ASA 705 the auditor is required to consider the implications for the audit.

Indicators of Possible Management Bias (Ref: Para. 30(a))

The susceptibility to management bias, whether intentional or unintentional, may increase with the degree of estimation uncertainty, complexity and subjectivity in management’s assessment of the entity’s ability to continue as a going concern.

When the auditor identifies indicators of possible management bias, the auditor may need a further discussion with management and may need to reconsider whether sufficient appropriate audit evidence has been obtained that the method, assumptions and data used by management to make its assessment of the entity’s ability to continue as a going concern were appropriate.

When such indicators are identified, this may also affect the auditor’s conclusion as to whether the auditor’s risk assessment and related responses remain appropriate. The auditor may also need to consider the implications for other aspects of the audit,^[34] including the need to further question the appropriateness of management’s judgements in making its assessment of the entity’s ability to continue as a going concern. Further, indicators of possible management bias may affect the auditor’s conclusion as to whether the financial report as a whole is free from material misstatement, as discussed in ASA 700.^[35]

Indicators of possible management bias may also be fraud risk factors and may cause the auditor to reassess whether the auditor’s risk assessment, in particular the assessment of the risks of material misstatement due to fraud, and related responses remain appropriate.^[36] When there is intention to mislead, management bias is fraudulent in nature and the auditor may need to consider whether the bias may represent a material misstatement due to fraud.

Concluding on Whether a Material Uncertainty Exists (Ref: Para. 31) 

When events or conditions are identified that may cast significant doubt on the entity’s ability to continue as a going concern, the auditor’s conclusion required by paragraph 31 is dependent on the auditor’s evaluation of management’s plans for future actions in accordance with paragraphs 26–28. For example, a material uncertainty exists when, based on the audit evidence obtained, the auditor concludes that:

• The outcome of these plans is not likely to be sufficient to mitigate the effects of the identified events or conditions.
• Management's plans may not be feasible in the circumstances.
• Management may not have the intent or ability to carry out specific courses of action.
• Third parties or related parties, including the entity’s owner-manager, may not have the intent or ability to provide necessary financial support.

When a material uncertainty exists, the auditor is required to determine whether the financial report provides the disclosures required by paragraph 33.

Refer to [Aus] Appendix 2 for a diagrammatic illustration of the auditor’s decision-making process for going concern.

Adequacy of Disclosures When No Material Uncertainty Exists (Ref: Para. 32, 34(b)(i))

Some financial reporting frameworks may address disclosures about:

• Principal events or conditions;
• Management’s evaluation of the significance of those events or conditions in relation to the entity’s ability to meet its obligations;
• Management’s plans that mitigate the effect of these events or conditions;
• The assumptions management makes about the future, and other sources of estimation uncertainty; or
• Significant judgements made by management as part of its assessment of the entity’s ability to continue as a going concern.

When the financial report is prepared in accordance with a fair presentation framework, the auditor’s evaluation as to whether the financial report achieves fair presentation includes the consideration of the overall presentation, structure and content of the financial report, and whether the financial report, including the related notes, represents the underlying transactions and events in a manner that achieves fair presentation.^[37]

When significant judgements are made by management in concluding that there is no material uncertainty, in applying paragraph 32 the auditor may determine, depending on the facts and circumstances, that additional disclosures are necessary for the financial report to achieve fair presentation (for fair presentation frameworks) or for the financial report not to be misleading (for compliance frameworks), as appropriate. Additional disclosures may be necessary , for example, when no disclosures are explicitly required by the applicable financial reporting framework regarding these circumstances.

In accordance with ASA 705,^[38] the auditor is required to express a modified opinion in the auditor’s report when the financial report does not provide the additional disclosures necessary to achieve fair presentation beyond disclosures specifically required by the applicable financial reporting framework.

Adequacy of Disclosure When a Material Uncertainty Exists (Ref: Para. 33, 35(a))

Paragraph 33 requires the auditor to determine whether the financial statement disclosures address the matters set forth in that paragraph. This determination is in addition to the auditor determining whether disclosures about a material uncertainty, required by the applicable financial reporting framework, are adequate. Disclosures required by some financial reporting frameworks that are in addition to matters set forth in paragraph 33 may include disclosures about:

• Management’s evaluation of the significance of the events or conditions relating to the entity’s ability to meet its obligations and management’s plans for future actions to address these events or conditions; or
• Significant judgements made by management as part of its assessment of the entity’s ability to continue as a going concern.

Some financial reporting frameworks may provide additional guidance regarding management’s consideration of disclosures about the magnitude of the potential impact of the principal events or conditions, and the likelihood and timing of their occurrence.

(Ref: Para. 34–38)

Appendix 1 to this ASA provides illustrations of the statements that are required to be included in the auditor’s report on the financial report when AASB Accounting Standards is the applicable financial reporting framework. If an applicable financial reporting framework other than AASB Accounting Standards is used, the illustrative statements presented in Appendix 1 to this ASA may need to be adapted to reflect the application of the other financial reporting framework in the circumstances.

The statements required by paragraphs 34–36 represent the minimum information that is to be presented in the auditor’s report in each of the circumstances described. The auditor may provide additional information to supplement the required statements, for example reference to where the respective responsibilities of those with responsibility for the financial report and of the auditor in relation to going concern are described. The Appendix of ASA 700^[39] includes illustrative wording to be included in the auditor’s report in relation to going concern to describe the respective responsibilities of those responsible for the financial report and of the auditor.

Use of Going Concern Basis of Accounting Is Appropriate – No Material Uncertainty Exists (Ref: Para. 34)

The auditor may provide additional information in the auditor’s report that would supplement the statements required by paragraph 34(a) (e.g., to provide a reference to the relevant accounting policies or the notes in the financial report).

Illustration 1 of Appendix 1 to this ASA is an example of an auditor’s report of an entity other than a listed entity when the auditor has obtained sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern basis of accounting and has concluded that no material uncertainty exists.

For an audit of a financial report of an entity other than a listed entity, law or regulation may require the auditor to provide the information required by paragraph 34(b). The auditor also may decide that providing the information required by paragraph 34(b) for an entity other than a listed entity would be appropriate to enhance transparency for intended users of a financial report in the auditor’s report. For example, the auditor may decide to do so for other entities, including those that may be of significant public interest, for example, because they have a large number and wide range of stakeholders and considering the nature and size of the business. Such entities may include financial institutions (such as banks, insurance companies, and superannuation funds), and other entities such as charities.

There may be circumstances when, in the auditor’s professional judgement, the disclosures of management’s judgements relating to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern are fundamental to the intended users’ understanding of the financial report. Also, there may be circumstances when the auditor, in addition to including a reference to the disclosure(s) in the financial report, would consider it appropriate to draw attention to key aspects of them. In such circumstances, the information required by paragraph 34(b) can be supplemented to include aspects of the identified events or conditions disclosed in the financial report, such as substantial operating losses, available borrowing facilities and possible debt refinancing, or non-compliance with loan agreements, and related mitigating factors or to draw attention to aspects of the disclosures of management’s judgements.

Description of How the Auditor Evaluated Management’s Assessment of Going Concern (Ref: Para. 34(b)(ii), 35(b))

The auditor may describe one or more of the following elements when providing the description of how the auditor evaluated management’s assessment of the entity’s ability to continue as a going concern:

• A brief overview of procedures performed;
• An indication of the outcome of the auditor’s procedures;
• Aspects of the auditor’s response or approach that were most relevant to the events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, including the evaluation of management’s plans for future actions; or
• Key observations with respect to the events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

The amount of detail to be provided in the auditor’s report to describe how the auditor evaluated management’s assessment of the entity’s ability to continue as a going concern is a matter of professional judgement. When considering the amount of detail to provide in the auditor’s report, the auditor may consider the following factors:

• The nature and extent of audit procedures performed to evaluate management’s assessment to conclude that no material uncertainty exists.
• The level of subjectivity, complexity and estimation uncertainty involved in management’s assessment.

In order for intended users to understand the significance of the description in the context of the audit of the financial report as a whole, care may be necessary so that language used in the description of how the auditor evaluated management’s assessment of the entity’s ability to continue as a going concern:

• Relates the description directly to the specific circumstances of the entity, while avoiding generic or standardised language.
• Takes into account how the events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern are addressed in the related disclosure(s) in the financial report.
• Does not contain or imply discrete opinions on separate elements of the financial report.
• When applicable, does not obscure that a material uncertainty exists.

The nature and extent of the information provided by the auditor is intended to be balanced in the context of the responsibilities of the respective parties (i.e., for the auditor to provide useful information in a concise and understandable form, while not inappropriately being the provider of original information about the entity). Original information is any information about the entity that has not otherwise been made publicly available by the entity (e.g., has not been included in the financial report or other information available at the date of the auditor’s report, or addressed in other oral or written communications by management or those charged with governance, such as a preliminary announcement of financial information or investor briefings). Such information is the responsibility of the entity’s management and those charged with governance.

It is appropriate for the auditor to seek to avoid inappropriately providing original information about the entity in the description of how the auditor evaluated management’s assessment of the entity’s ability to continue as a going concern. The description of how the auditor evaluated management’s assessment of the entity’s ability of going concern is not usually of itself original information about the entity, as it describes the matter in the context of the audit. However, the auditor may consider it necessary to include additional information to explain aspects of the events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern to enhance users’ understanding. When such information is determined to be necessary by the auditor, the auditor may encourage management or those charged with governance to disclose additional information, rather than the auditor providing original information in the auditor’s report. Management or those charged with governance may decide to include new or enhanced disclosures in the financial report or elsewhere in the annual report relating to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern in light of the fact that the auditor will communicate how they were addressed in the auditor’s report.

Illustration 2 of Appendix 1 to this ASA is an example of an auditor’s report of a listed entity when:

• The auditor has obtained sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern basis of accounting;
• The auditor has concluded that no material uncertainty exists; and
• The financial report adequately discloses the significant judgements made by management in concluding that there is no material uncertainty related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

Use of the Going Concern Basis of Accounting Is Appropriate – A Material Uncertainty Exists (Ref: Para. 35‒36)

The identification of a material uncertainty is a matter that is important to intended users’ understanding of the financial report. The use of a separate section with a heading that includes reference to the fact that a material uncertainty exists alerts intended users to this circumstance.

Adequate Disclosure of a Material Uncertainty Is Made in the Financial Report (Ref: Para. 35)

Illustrations 3 and 4 of Appendix 1 to this ASA are examples of an auditor’s report of an entity other than a listed entity and a listed entity, respectively, when the auditor has obtained sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern basis of accounting but a material uncertainty exists and disclosure is adequate in the financial report.

Adequate Disclosure of a Material Uncertainty Is Not Made in the Financial Report (Ref: Para. 36)

Illustrations 5 and 6 of Appendix 1 to this ASA are examples of auditor’s reports for a listed entity and an entity other than a listed entity containing qualified and adverse opinions, respectively, when the auditor has obtained sufficient appropriate audit evidence regarding the appropriateness of management’s use of the going concern basis of accounting but adequate disclosure of a material uncertainty is not made in the financial report.

Considerations When the Auditor Disclaims an Opinion on the Financial Report (Ref: Para. 37)

In situations involving multiple uncertainties that are significant to the financial report as a whole, the auditor may consider it appropriate, in extremely rare circumstances, to express a disclaimer of opinion. ASA 705 provides guidance on this issue.^[40]

Paragraph 37 prohibits including separate sections on Going Concern or Material Uncertainty Related to Going Concern in the auditor’s report when the auditor disclaims an opinion on the financial report, unless the auditor is otherwise required by law or regulation, as this would be inconsistent with the disclaimer of opinion on the financial report as a whole and may suggest that the financial report as a whole is more credible in relation to those matters. When the auditor disclaims an opinion, ASA 705^[41] requires the auditor to state in the Basis for Disclaimer of Opinion section of the auditor’s report that the auditor is unable to conclude on the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial report and whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern. Providing such a statement in the Basis for Disclaimer of Opinion section of the auditor’s report provides useful information to users that may guard against inappropriate reliance on the financial report.

Use of Going Concern Basis of Accounting is Inappropriate (Ref: Para. 38) 

If the financial report has been prepared using the going concern basis of accounting but, in the auditor’s professional judgement, management’s use of the going concern basis of accounting in the preparation of the financial report is inappropriate, the requirement in paragraph 38 for the auditor to express an adverse opinion applies regardless of whether or not the financial report includes disclosure of the inappropriateness of management’s use of the going concern basis of accounting.

When the use of the going concern basis of accounting is not appropriate in the circumstances, management may be required, or may elect, to prepare the financial report on another basis (e.g., liquidation basis). The auditor may be able to perform an audit of the financial report provided that the auditor determines that the other basis of accounting is acceptable in the circumstances. The auditor may be able to express an unmodified opinion on the financial report, provided there is adequate disclosure therein about the basis of accounting on which the financial report is prepared, but may consider it appropriate or necessary to include an Emphasis of Matter paragraph in accordance with ASA 706^[42] in the auditor’s report to draw the intended user’s attention to that alternative basis of accounting and the reasons for its use.

(Ref: Para. 39–40)

The auditor may consider it appropriate to obtain specific written representations in addition to those required in paragraphs 39 and 40. For example, if the auditor obtains written confirmation as described in paragraph A63 from a related party, including the entity’s owner-manager, the auditor may still request written representations from management as to the validity of the written confirmation.

(Ref: Para. 41–42)

ASA 260^[43] explains that timely communication throughout the audit contributes to the achievement of robust two-way dialogue between those charged with governance and the auditor. The appropriate timing for communications will vary with the circumstances of the engagement, including the significance and nature of the matter, and the action expected to be taken by those charged with governance.

The auditor’s understanding of how those charged with governance exercise oversight over management’s assessment of the entity's ability to continue as a going concern required by paragraph 12(f), may also provide a useful basis to promote effective two-way communication between the auditor and those charged with governance.

Communication with those charged with governance about the auditor’s evaluation of management’s assessment of the entity’s ability to continue as a going concern provides an opportunity for those charged with governance to understand the auditor’s work that forms the basis for the auditor’s conclusions, and where applicable, the implications for the auditor’s report. Examples of matters the auditor may communicate with those charged with governance include:

In the case of an entity other than a listed entity, in addition to the required statements to be provided in the auditor’s report, when appropriate, the auditor may also communicate with those charged with governance additional matters, for example, describing how the auditor evaluated management’s assessment of the entity’s ability to continue as a going concern.

(Ref: Para. 43) 

When the auditor considers including a separate section with a heading “Material Uncertainty Related to Going Concern” in the auditor’s report, or issuing a modified opinion in respect of going concern matters, the auditor may be required by law, regulation or relevant ethical requirements to communicate these matters. The reporting may be to an applicable regulatory, enforcement, supervisory or other appropriate authority outside of the entity. In addition, the auditor may be required by law, regulation or relevant ethical requirements to consider the timing of such reporting prior to the issuance of the auditor’s report.

Law, regulation or relevant ethical requirements may not include requirements for the auditor to report to an appropriate authority outside the entity as described in paragraph A102. Nevertheless, law, regulation or relevant ethical requirements^[44] may provide the auditor with the right to report the matter to an appropriate authority outside the entity, unless disclosure of the information is precluded by the auditor’s duty of confidentiality under law, regulation or relevant ethical requirements. In such circumstances, the auditor may also decide to discuss the matter with those charged with governance.

Factors the auditor may consider in determining whether it is appropriate to report the matter to an appropriate authority outside the entity, may include:

• Any views expressed by the regulatory, enforcement, supervisory or other appropriate authority outside of the entity.
• Whether reporting the matter would be in the public interest.
• The adequacy and timeliness of actions by management and, where appropriate those charged with governance, to address or mitigate the situation.

Reporting going concern matters to an appropriate authority outside of the entity may involve complex considerations and professional judgements. In those circumstances, the auditor may consider consulting internally (e.g., within the firm or a network firm) or on a confidential basis with a regulator or professional body (unless doing so is prohibited by law or regulation or would breach the duty of confidentiality). The auditor may also consider obtaining legal advice to understand the auditor’s options and the professional or legal implications of taking any particular course of action.