The auditor's going concern evaluation
How an auditor evaluates management's going concern assessment under ISA 570, and how a material uncertainty or a wrong basis changes the report.
By Achekam · · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya
The client lost money this year, the overdraft is at its limit and the facility comes up for renewal shortly after year end. The directors are confident: "the bank has always renewed". The draft statements carry a standard going concern policy and nothing more. Somewhere between that confidence and that silence sits the auditor's going concern evaluation, and it is one of the few areas where the auditor's judgement changes what every reader sees in the report.
ISA 570 does not ask the auditor to predict the future. It asks the auditor to evaluate management's assessment, obtain evidence about the things that assessment rests on, and conclude on two questions: is the going concern basis of accounting appropriate, and is there a material uncertainty that the statements must disclose?
Management's assessment, and the period it covers
Responsibility for assessing going concern sits with management. Under IAS 1, and under IFRS for SMEs, that assessment looks at least twelve months from the end of the reporting period. Under the current ISA 570 (Revised), if management's assessment covers less than twelve months from the date of the financial statements, the auditor asks management to extend it. The auditor also asks about events or conditions beyond that period that may cast doubt on going concern.
In a small company, "management's assessment" may be nothing written down. That does not let the auditor off; it means the auditor discusses the basis for the assumption with management, asks them to prepare a cash-flow forecast where events or conditions exist, and documents the discussion.
The IAASB has issued ISA 570 (Revised 2024), which strengthens the evaluation and is effective for periods beginning on or after 15 December 2026, among other things moving the reference point for the assessment period to the date the statements are approved. Firms should update methodology and report templates ahead of that date.
Evidence: forecasts, financing and events after year end
Where events or conditions are identified that may cast significant doubt, ISA 570 requires additional procedures. In practice that means:
- The forecast. Evaluate the reliability of the data behind it and whether the assumptions are supported. Compare last year's forecast with what actually happened; a client that missed its own forecast by a wide margin last year has a credibility problem this year.
- Financing. Obtain the facility letters, renewal correspondence and covenant calculations. "The bank has always renewed" is a belief, not evidence. A letter from the bank confirming intent to renew, with its conditions, is evidence.
- Management's plans. Evaluate whether plans to sell assets, cut costs or raise capital are feasible and likely to improve the position.
- Events after year end. Read minutes, management accounts and bank statements after year end for what actually happened to cash, customers and funding.
- Written representations about management's plans and their feasibility.
Use the RFI console to ask the client for these. Staff create, send and track requests for documents, answers and confirmations in one console, whichever screen the request was raised from, and the timeline shows what was asked and when it arrived. If the forecast arrives the day before signing, the file should show that it was asked for weeks earlier.
Material uncertainty related to going concern
After the evidence, the auditor concludes whether a material uncertainty exists: whether the potential impact of the events or conditions, and the likelihood of their occurrence, is such that disclosure of the uncertainty is necessary for fair presentation.
Three outcomes are possible, and they lead to different reports:
| Conclusion | Effect on the auditor's report |
|---|---|
| Going concern basis appropriate, material uncertainty exists and is adequately disclosed | Unmodified opinion with a separate section headed "Material Uncertainty Related to Going Concern", referring to the disclosure |
| Material uncertainty exists but is not adequately disclosed | Qualified or adverse opinion, with the basis section explaining that the uncertainty exists and is not adequately disclosed |
| Going concern basis inappropriate | Adverse opinion |
There is also the close call: events or conditions exist, but the auditor concludes no material uncertainty exists. ISA 570 still requires the auditor to evaluate whether the statements adequately disclose those events or conditions. That disclosure question is covered from the preparer's side in going concern disclosure in the statements.
Note that the material uncertainty section is not an emphasis of matter paragraph. ISA 570 gives it its own heading and place in the report.
Getting it into the report
In Achekam, the engagement team drafts the auditor's report on standard ISA 700, 705, 706 and 701 wording, covering unmodified, qualified, adverse and disclaimer opinions. Approval is refused while any bracketed placeholder remains, and only the engagement partner approves. The material uncertainty section comes from ISA 570, so the team must make sure the draft contains it, with the heading and the reference to the note, rather than assuming the standard wording already does. When a modification is needed, the choice between qualified and adverse is the subject of qualified, adverse or disclaimer.
On the working paper, staff can ask AI to draft the wording of a conclusion or a procedure's response, and the draft goes into the file only when a person saves it. Use that for the writing, not the thinking: the evaluation of the forecast and the conclusion on material uncertainty are the team's judgements, and the written response on each going concern procedure should show the evidence that supports them. Each step is marked done only with a written response and its documents, or set aside with a reason, and steps are never deleted.
Consulting before concluding
Going concern conclusions are a classic subject for consultation, particularly where the team disagrees about whether an uncertainty is material, or where the client resists disclosure. Staff can take a technical consultation on an engagement from question to conclusion and closure, and record a difference of opinion with each party's position, escalation and resolution.
One limit matters here. An open consultation or difference of opinion does not stop the audit report from being approved or signed in Achekam. The partner must check, before approving, that every going concern consultation is closed and its conclusion reflected in the report.
A going concern checklist
- Identify events or conditions at planning, and revisit them at completion.
- Ask early for the forecast, facility letters and covenant calculations.
- Test the forecast's assumptions against last year's actual results.
- Read everything after year end that shows what actually happened to cash.
- Conclude explicitly on the basis and on material uncertainty.
- Match the report to the conclusion, and close any consultation first.
The IAASB's page on ISA 570 (Revised 2024) describes the revised standard and its effective date.
Next step
On each client that made a loss or breached a covenant this year, ask now for the forecast and the bank's position, before fieldwork. Going concern evidence gathered in the last week before signing is rarely the evidence you need.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
