Brand new audit requirements about going concern

A timely topic!

As of 2020, the International Auditing and Assurance Standards Board (IAASB) has issued new audit requirements related to the going concern assumption. These changes aim to enhance the auditor's assessment of a company's ability to continue as a going concern and provide more transparency to stakeholders.

Here are the key changes:

  1. New audit procedure: Auditors are now required to perform a specific procedure to assess the entity's ability to continue as a going concern. This involves:
    • Evaluating the entity's financial statements to identify any indicators of potential going concern issues.
    • Assessing the entity's ability to continue as a going concern by considering factors such as its financial position, financial performance, and cash flows.
    • Evaluating the entity's management's plans and actions to address any going concern issues.
  2. Going concern indicators: The new standard provides a list of indicators that auditors should consider when assessing the entity's ability to continue as a going concern. These indicators include:
    • Material weaknesses in internal control over financial reporting.
    • Significant financial difficulties or liquidity problems.
    • Operating losses or declining revenues.
    • Inability to meet financial obligations.
    • Uncertainty about the entity's future operations or financial performance.
  3. Auditor's report: The auditor's report will now include a statement about the entity's ability to continue as a going concern. If the auditor has identified any going concern issues, the report will include an emphasis of matter paragraph that highlights these concerns.
  4. Management's responsibility: The new standard places greater responsibility on management to assess the entity's ability to continue as a going concern and to provide adequate disclosures in the financial statements.
  5. Enhanced disclosures: The new standard requires entities to provide more detailed disclosures about their ability to continue as a going concern, including:
    • A description of the entity's financial position and financial performance.
    • An analysis of the entity's liquidity and capital resources.
    • A discussion of the entity's management's plans and actions to address any going concern issues.

These changes aim to improve the transparency and reliability of financial statements and provide stakeholders with a better understanding of a company's ability to continue as a going concern.

The new audit requirements are effective for audits of financial statements for periods ending on or after December 15, 2020.