November 2021


Abhishek Agrawal
Chartered Accountant

(This is the second article of the two-part series on Going Concern.
The first part appeared in the BCAJ edition of October, 2021.)

The first part of this article on Going Concern had touched upon the various aspects of going concern assessment by management; this part will attempt to highlight the various factors that an auditor should consider while evaluating the going concern assessment performed by the management, disclosure in the financial statements based on the outcome of the evaluation, and reporting considerations under various scenarios in the auditorsí report.

The Covid-19 pandemic and the on-going economic developments have changed the traditional way of doing business and have created significant challenges for some of the industries to save their existence and to survive in the present economic environment.

Our regulators have also acknowledged the criticality of the situation and, to save the interest of investors and users of the financial statements, have increased their focus on the disclosures and reporting requirements related to going concern assumption used in the preparation of financial statements, and introduced new provisions in the reporting requirement wherever needed.

The Institute of Chartered Accountants of India has also introduced guidance with respect to the assessment and evaluation of the going concern assumption in the present economic environment and also an implementation guide to assist auditors to comply with the additional reporting requirements.

Although the above amendments and additional guidance were introduced to assist auditors in discharging their responsibilities and to save the interest of the users of the financial statements, they have significantly increased the responsibilities of the auditors and the criticality of their role in the true and fair reporting of the financial statements.

SA 570 (Revised) states that the auditorís responsibilities are to obtain sufficient audit evidence on the appropriateness of managementís use of the going concern basis of accounting in the preparation of the financial statements and to conclude, based on the audit evidence obtained, whether a material uncertainty exists about the entityís ability to continue as a going concern.

The auditor needs to be cognizant of this responsibility to obtain sufficient appropriate audit evidence on the appropriateness of the going concern assumption throughout the audit, and should start this evaluation from the audit planning stage, while understanding the entityís business and assessing the risks of material misstatement in accordance with SA 315 Identifying and Assessing the Risks of Material Misstatement Through Understanding the Entity and its Environment, by considering whether there are any conditions or events that, individually or in aggregate, raise significant doubt about an entityís ab


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