Introduction to AU-C 570
The Auditing Standards Board (ASB) issued AU-C 570, which provides guidance on auditor responsibilities related to an entity's ability to continue as a going concern. This standard is essential for auditors to evaluate whether there are substantial doubts about an entity's ability to continue as a going concern.
AU-C 570 applies to all audits of financial statements, regardless of the entity's size or industry. Auditors must consider the entity's current and expected financial condition, as well as any other relevant factors, when evaluating going concern.
Evaluating Going Concern
When evaluating going concern, auditors must consider whether there are substantial doubts about the entity's ability to continue as a going concern. This evaluation involves assessing the entity's current financial condition, including its liquidity and solvency, as well as its ability to generate cash flows.
Auditors must also consider any other relevant factors, such as the entity's industry and market trends, as well as any significant events or transactions that may impact its ability to continue as a going concern.
Reporting Requirements
If, after evaluating going concern, the auditor concludes that there are substantial doubts about the entity's ability to continue as a going concern, the auditor must include an emphasis-of-matter paragraph in the audit report. This paragraph must explain the reasons for the substantial doubts and the potential impact on the entity's financial statements.
The auditor must also consider whether the entity's financial statements are presented fairly and in accordance with the applicable financial reporting framework, despite the going concern doubts.
Documentation Requirements
Auditors must document their evaluation of going concern, including the procedures performed and the conclusions reached. This documentation must include an assessment of the entity's current financial condition and any other relevant factors considered.
The auditor's documentation must also include the basis for the conclusion that there are, or are not, substantial doubts about the entity's ability to continue as a going concern.
Conclusion
In conclusion, auditor responsibilities under AU-C 570 for going concern are critical to ensuring that financial statements are presented fairly and in accordance with the applicable financial reporting framework. Auditors must carefully evaluate going concern and report their conclusions in the audit report.
By following the guidance in AU-C 570, auditors can provide stakeholders with confidence that the entity's financial statements are reliable and that the auditor has performed a thorough evaluation of going concern.
Frequently Asked Questions
What is the purpose of AU-C 570?
The purpose of AU-C 570 is to provide guidance on auditor responsibilities related to an entity's ability to continue as a going concern.
What factors must auditors consider when evaluating going concern?
Auditors must consider the entity's current financial condition, industry and market trends, and any significant events or transactions that may impact its ability to continue as a going concern.
What is the reporting requirement if there are substantial doubts about going concern?
The auditor must include an emphasis-of-matter paragraph in the audit report explaining the reasons for the substantial doubts and the potential impact on the entity's financial statements.
What documentation is required for the evaluation of going concern?
The auditor must document their evaluation of going concern, including the procedures performed and the conclusions reached.
Can an entity's financial statements be presented fairly if there are substantial doubts about going concern?
Yes, an entity's financial statements can be presented fairly even if there are substantial doubts about going concern, as long as the auditor has evaluated going concern and reported their conclusions in the audit report.
Who is responsible for evaluating going concern?
The auditor is responsible for evaluating going concern and reporting their conclusions in the audit report.