Going Concern on AUD: What Happens When the Company Might Not Survive?
Separate management's responsibility from the auditor's responsibility, then evaluate whether substantial doubt remains.
Management evaluates
Management evaluates whether conditions raise substantial doubt about the entity's ability to continue as a going concern over the applicable evaluation period.
Auditor evaluates the assessment
The auditor considers recurring losses, negative cash flows, loan defaults, lost customers, legal problems, and other adverse conditions.
Management plans
Plans may include borrowing, restructuring debt, selling assets, reducing expenditures, or obtaining capital. The auditor evaluates whether the plans are feasible and likely to alleviate the doubt.
Reporting
The report effect depends on whether substantial doubt remains, whether disclosures are adequate, and the applicable reporting standards. Do not automatically assume adverse or disclaimer.
The takeaway
Going concern is about uncertainty and disclosure, not automatically about misstatement.
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FAQ
Does substantial doubt automatically mean disclaimer?
No.
Can management plans alleviate substantial doubt?
Potentially, if feasible and sufficiently supported.
Does the auditor rely only on management's optimism?
No. The auditor performs an independent evaluation.