Warning Issued on 'Going Concern' Assumptions

Submitted by rkoreto on Fri, 12/30/2011 - 12:52

The International Auditing and Assurance Standards Board (IAASB) issued a release on Dec. 28 advising auditors "that the appropriateness of management’s use of the going concern assumption is a matter to be considered on every audit engagement."

The released explained that the current economic climate makes assessing an entity's ability to continue as a going concern especially relevant, and quoted IAASB Chairman Arnold Schilder as saying, “We cannot stress enough the importance of professional skepticism and judgment in evaluating financial statement disclosures and the implications for the auditor’s report when a material uncertainty exists relating to events or conditions that, individually or collectively, may cast doubt on the entity’s ability to continue as a going concern.”

 
The release referred auditors to the IAASB's 2009 Staff Audit Practice Alert, Audit Considerations in Respect of Going Concern in the Current Economic Environment. This alert notes several key factors auditors should consider:
 
  • Fixed-term borrowings approaching maturity without realistic prospects of renewal or re­payment; or excessive reliance on short-term borrowings to finance long-term assets.
  • Indications of withdrawal of financial support by creditors.
  • Inability to comply with the terms of loan agreements.
  • Loss of a major market, franchise, license or principal supplier.
  • Non-compliance with capital or other statu­tory requirements.

 

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