Going Concern: A Discussion of the Auditor's Responsibilities

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Define ‘going concern’ and discuss the auditor’s responsibilities in respect of going concern. (4 marks) Going concern

Going concern means that the enterprise will continue in operational existence for the foreseeable future without the intention or necessity of liquidation or otherwise ceasing trade. It is one of the fundamental accounting concepts used by auditors and stated in IAS 1 Presentation of Financial Statements. The auditor’s responsibility in respect of going concern is explained in ISA 570 Going Concern. The ISA states ‘when planning and performing audit procedures and in evaluating the results thereof, the auditor should consider the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements’. The auditor’s responsibility therefore falls into three areas: (i) To carry out appropriate audit procedures that will identify whether or not an organisation can continue as a going concern. (ii) To ensure that the organisation’s management have been realistic in their use of the going concern assumption when preparing the financial statements. (iii) To report to the members where they consider that the going concern assumption has been used inappropriately, for example, when the financial statements indicate that the organisation is a going concern, but audit procedures indicate this may not be the case.

In the context of the cash flow forecast, define the term ‘negative assurance’ and explain how this differs from the assurance provided by an audit report on statutory financial statements. (4 marks)

Negative assurance
Negative assurance means that nothing has come to the attention of an auditor which indicates that the cash flow forecast contains any material errors. The assurance is therefore given on the absence of any indication to the contrary. In contrast, the audit report on statutory financial statements provides positive or reasonable assurance; that is the financial statements do...
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