1. Enhanced risk assessment procedures

One of the central changes in ISA 570 (Revised 2024) is the emphasis on a more robust, risk-based approach to evaluating going concern. Auditors are now required to apply risk assessment requirements more directly when considering events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern.

The revised standard expands the scope of the auditor’s risk assessment procedures, requiring consideration of both internal and external factors, such as macroeconomic conditions, supply chain disruptions, and access to financing. The aim is to identify all relevant events and conditions that may trigger doubt about the going concern assumption.

The revised standard also provides clarity by emphasising that such events or conditions are identified before consideration of mitigating factors included in management’s plans for future actions.

 

2. Increased focus on management’s assessment

ISA 570 (Revised 2024) requires a more detailed evaluation of management’s assessment of going concern. Auditors must now assess whether management’s process is sufficiently robust, includes all relevant information, and is performed with an appropriate degree of detail and scrutiny, given the entity’s circumstances.

The period for which management must assess going concern is now at least 12 months from the date of approval of the financial statements. The auditor is expected to critically evaluate whether the assessment period is appropriate and whether management should extend its assessment, if a different period is used, with further actions taken, if management is unwilling to extend its assessment.

Management representations requested are also enhanced to address the appropriateness of the going concern basis of accounting, methods, assumptions, and data used in assessments, events reflected by assessments, and disclosure of matters relevant to going concern.

 

3. Stronger requirements on auditor’s evaluation

The revised standard places more specific obligations on auditors to do the following:

• Evaluate the reasonableness of management’s method, assumptions, and data used in their going concern assessment
• Consider multiple scenarios, including a ‘worst-case’ scenario, where appropriate
• Evaluate the adequacy and consistency of supporting documentation and challenge management’s conclusion, where necessary
• Consider whether material uncertainties exist that should be disclosed in the financial statements
• Consider possible indicators of management bias.

ISA 570 (Revised 2024) requires the auditor to evaluate both the intent and ability of management to carry out specific courses of action in their plans for future actions. The auditor must obtain evidence about such intent and ability, if financial support is provided by third or related parties, including the entity’s owner-manager.

Where events or conditions are identified, auditors must determine whether these give rise to material uncertainty, or whether the use of the going concern basis itself is inappropriate – both of which carry significant implications for the audit opinion.

 

4. Robust communication requirements

The revised standard significantly enhances communication expectations between the auditor, management and those charged with governance, and users of financial statements.
Auditors must now have more comprehensive discussions with management and those charged with governance throughout the engagement about the going concern assessment process, identified risks, significant judgments, and related disclosures.

The auditor’s report must clearly describe the outcome of the going concern assessment, thereby enhancing transparency to users of the auditor’s report:

• • No material uncertainty: An explicit statement that management’s use of the going concern basis of accounting is appropriate, and that a material uncertainty has not been identified.
  • Material uncertainty and adequate disclosure made: An explicit statement that management’s use of the going concern basis of accounting is appropriate, a material uncertainty exists, and the auditor’s opinion has not been modified.
  • Listed entities: When significant judgments are made by management in concluding that there is no material uncertainty, a description is given of how the auditor evaluated management’s assessment of the entity’s ability to continue as a going concern. When a material uncertainty exists, a description is given of how the auditor evaluated management’s assessment of the entity’s ability to continue as a going concern.

This promotes greater transparency and user understanding of going concern risks.

 

5. Professional scepticism and documentation

ISA 570 (Revised 2024) reinforces the requirement for heightened professional scepticism, especially in times of economic uncertainty or financial stress. Auditors must not simply accept management’s assertions, but should rigorously test and corroborate them.

Documentation requirements are also more specific. Auditors must document professional judgment applied relating to conclusions on their evaluation of management’s assessment, the basis for their conclusion, and the rationale for any communication in the audit report.