Going concern, what period should be used by the auditor?

When evaluating management’s assessment of the entity’s ability to continue as a going concern, what period should be used by the auditor?

In financial reporting frameworks (Ind AS 1, Presentation of Financial Statements and AS 1, Disclosure of Accounting Policies), there is an explicit requirement for management to make a specific assessment of the entity’s ability to continue as a going concern.

In assessing an entity’s ability to continue as a going concern, Ind AS 1 and AS 1 require that all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period, should be considered by management.

In evaluating management’s assessment of the entity’s ability to continue as a going concern, the auditor shall cover the same period as that used by management to make its assessment as required by the applicable financial reporting framework, or by law or regulation if it specifies a longer period.

If management’s assessment of the entity’s ability to continue as a going concern covers less than twelve months from the date of the financial statements as defined in SA 560, Subsequent Events,

the auditor shall request management to extend its assessment period to at least twelve months from that date.

The auditor should remain alert for and consider the consequences of known or expected events that will
occur soon after the twelve months from the end of the reporting period.

If events or conditions have been identified that may cast significant doubt on the entity’s ability to continue as a going concern,

the auditor shall obtain sufficient appropriate audit evidence to determine whether or not 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 through performing additional audit procedures, including consideration of mitigating factors.

As it is likely that the COVID-19 pandemic will result in events and conditions that may cast significant doubt on an entity’s ability to continue as a going concern,

it is also more likely that auditors may need to perform the additional audit procedures in accordance with paragraph 16 of SA 570 (Revised). Paragraph A16 of SA may be relevant to the requirement in paragraph 16 in the circumstances .

In accordance with Ind AS 10, Events Occurring after Reporting Period / AS 4, Contingencies and Events
Occurring after the Balance Sheet Date
, events after the reporting date that indicate an entity is no longer a going concern are adjusting events that should be considered in the entity’s going concern assessment.

If management determines after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so, the financial statements may require a fundamental change in the basis of accounting (e.g., to liquidation basis of accounting), rather than an adjustment to the amounts recognised within the original basis of accounting.

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