Implications for the Auditor’s Report (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.
Section Implications for the Auditor’s Report (R - Auditing Standard ASA 570 Going Concern - Implications for the Auditor’s Report (Ref: Para. 34—38) | Zoe
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.