SA 570 requires the auditor to evaluate whether the going concern basis of accounting — the assumption that the entity will continue operating for the foreseeable future — remains appropriate, and whether a material uncertainty exists that should be disclosed even if the basis itself is still appropriate. For the large majority of audits this evaluation concludes with no material uncertainty and no change to the standard audit report. The standard's real content is the decision structure for the minority of cases where events or conditions genuinely cast doubt, and the specific wording difference between disclosing a material uncertainty and concluding the going-concern basis is no longer appropriate at all.
Events and conditions that typically trigger the evaluation
- Negative net worth, or current liabilities exceeding current assets by a significant margin.
- Loan agreements in default or near breach of covenant, with no waiver obtained.
- Loss of a major customer, key supplier, or key management personnel with no clear replacement.
- Recurring operating losses, or negative operating cash flows over a sustained period.
- Legal proceedings that could, if resolved unfavourably, result in claims the entity could not satisfy.
What the auditor actually does once a trigger exists
- 01Evaluate management's own assessmentManagement is responsible for making its own going-concern assessment first — the auditor evaluates that assessment, rather than performing an independent one from scratch.
- 02Evaluate management's plans to mitigate the conditionsA fundraising plan, an asset sale, a renegotiated covenant — evaluated for whether it's realistic and sufficiently likely to succeed, not simply accepted because management says it will happen.
- 03Obtain sufficient appropriate evidence for the mitigationA verbal assurance that a promoter will inject funds is not evidence; a signed term sheet or an executed agreement is closer to it.
- 04Consider the time period management assessedSA 570 requires evaluation of at least twelve months from the date the financial statements are approved, not twelve months from the balance sheet date — a distinction that matters near a financial year end.
The wording distinction that actually drives the report
| Outcome | What the report does |
|---|---|
| Going concern basis appropriate, no material uncertainty | Standard unmodified report — no separate paragraph needed |
| Going concern basis appropriate, but a material uncertainty exists (adequately disclosed) | A separate "Material Uncertainty Related to Going Concern" paragraph added, opinion remains unmodified if disclosure is adequate |
| Going concern basis is no longer appropriate | An adverse opinion if the financial statements are still prepared on a going-concern basis despite that conclusion — a fundamentally different and more serious outcome than a material uncertainty disclosure |
A material uncertainty that exists but is NOT adequately disclosed in the financial statements does not simply skip the separate paragraph — it becomes a qualified or adverse opinion on the basis of inadequate disclosure, which is a different and more serious consequence than the uncertainty itself.
How we think about this
The going-concern evaluation is not a one-time checklist item at year end — conditions identified throughout the engagement (a covenant breach noticed during testing, a customer loss mentioned in a board minute) should feed into it as they're found, not be reconstructed from memory during final review.
This is practical guidance written for audit teams, not an authoritative statement of any standard or statute. Standards, forms and timelines change. Check the current text issued by the ICAI and the relevant authority before relying on anything here in an audit file.
Related resources
- Audit workflow & automationSA 315: identifying and assessing the risks of material misstatementA risk assessment that doesn't name a specific assertion isn't a risk assessment under SA 315 — it's a general impression written down.
- Audit documentationSA 580: written representations, and why they're not a substitute for evidenceA signed representation letter is not evidence that something is true. It's evidence that management told you it was true — a different and much weaker thing.
- Technology, data & AI in auditContinuous audit vs periodic audit: which fits a firmWhat actually changes for staffing and client relationships when testing moves off the year-end crunch, and where a year-end wrap-up is still unavoidable.
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