Client: ABC Company

Accounting Period: 31st December 20x1

Close Monitoring? (Y/N)

Going Concern Considerations Template

Completion of this template is mandatory for all engagements where an audit opinion is expressed. We
complete part of this document during the planning phase and we reaffirm our conclusions immediately prior to
issuing the audit opinion

We consider the appropriateness of the going concern assumption (that the entity will continue in operational
existence for the foreseeable future) as the basis for the preparation of the financial statements, including any
relevant disclosures. We focus our attention on events occurring within a year from the date of approval of
financial statements and to a lesser degree on events occurring beyond that time.

An initial assessment of going concern should be made during the planning phase of the engagement at which
time we consider whether there are any indicators that the going concern basis may not be appropriate and
evaluate the means by which the directors will assess that the going concern assumption is appropriate for the
current financial statements. This template should be completed to assist us identify going concern risks and if a
‘Yes’ response is given in Part B and there are no mitigating factors then procedures must be selected from Parts
C & D to investigate and evaluate the impact of the going concern risk identified and document additional audit
evidence obtained.

Throughout the audit, the team should be alert to changes in the initial assessment. If, at any stage of the audit, a
question arises as to the appropriateness of the going concern basis, we consider whether the conditions affect the
risk of material misstatement and perform procedures to form/update our opinion in relation to the appropriateness
of the going concern basis and update this template accordingly. A final reaffirmation of the conclusions formed
in relation to going concern should be made immediately prior to issuing the audit opinion.

Conclusion at planning
The going concern basis appears to be appropriate because of the following factors:

We have reviewed the going concern assumption of ABC Corp. and have identified the
following positive factors that support the going concern assumption for the preparation of
the financial statements for the year ending 31 December 20x1.

 No turnover of senior management of the Company during the year.

 No noncompliance with legal or other statutory requirements detected during the year which
may affect the going concern assertion of the Company for the year ended 31 December
20x1.
 No major changes in legislation or government policy is expected which may adversely affect
the entity.

 The management is of the opinion that the Company has a steady business and hence would
be operating as a going concern.

 At the statement of financial position date, there was adequate availability of funds
considering the size of the Company.

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  Reviewed all the directives issued by Management / minutes of meetings maintained by the
Company for significant issues and no reason has been identified not to support the going
concern of the Company for the year ended 31 December 20x1.

 In view of the above, there is no doubt on the going concern capability of the Company.

Where the going concern basis does not appear to be appropriate we complete parts C
and D of this form

Sign-off at Planning
Prepared by: Date
Reviewed by: Date

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Reaffirmation at Conclusion of the Audit
This is required prior to signing the audit opinion.
(Partner Sign off is required when procedures from Part C or D were performed).

We have reconsidered whether there are events or conditions which, individually or

collectively, may cast significant doubt on the entity’s ability to continue as a going
concern.
[Note: If there are no indications we need to document below how we came to this
conclusion.]

The going concern basis is appropriate because of the following factors:

Apart from the same factors identified at the time of planning, the Company has the
following:
 Favourable Key financial ratio
 Positive net current assets
 Based on the discussion with management, we have taken account of all relevant
information in assessing the appropriateness of going concern basis and we are satisfied
that the Company will continue as a going concern for the foreseeable and for atleast one
year after the date of the statement of financial position.

Where the going concern basis is not appropriate we have taken the following actions:

 N.A.

We confirm:

We have assessed and evaluated the adequacy of the means by which those charged with
governance have satisfied themselves that the going concern basis of preparation of the
financial statements is appropriate. The financial statements have been prepared on going
concern basis.

Sign-off at Completion
Prepared by: Date
Reviewed by: Date
Reviewed by: Date

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PART A – Evaluation of the Management’s Assessment
We assess the adequacy of the means by which those charged with governance have satisfied themselves that the
going concern basis of preparation of the financial statements is appropriate and that the financial statements
include any disclosures relating to going concern which are necessary for them to give a true and fair view by the
following procedures. Considerations include:
 the way in which the entity identifies warnings of future risks and uncertainties which the entity might face
 budget and/or forecast cash flows and the quality of the budget/forecast systems in place
 whether the key assumptions underlying the budgets and/or forecasts appear appropriate in the circumstances
 any obligations, undertakings or guarantees arranged for the giving or receiving of support, and their
adequacy
 the existence, adequacy and terms of borrowing facilities.

Where we have completed additional procedures in Parts C and D, we consider updating our evaluation of
management’s assessment that was completed at the planning phase of the engagement.

We should consider the same period as that used by those charged with governance in making their assessment. If
their assessment covers a period less than one year from the date of approval of the financial statements, and they
have not disclosed that fact in the financial statements, we should do so within the section of our report setting out
the basis of our opinion.

PROCEDURES
 Make enquiries of those charged with governance* as to how they satisfied themselves that the
going concern basis is appropriate and that any required disclosures are made;

 Examine appropriate available financial information;

 Enquire of those charged with governance as to their knowledge of events or conditions and related
business risks beyond the period of their assessment that may cast significant doubt on the entity’s
ability to continue as a going concern;

EVALUATION

 Financial ratio
 Positive current assets
 Based on the discussion with management, we have taken account of all relevant information in assessing
the appropriateness of going concern basis and we are satisfied that the Company will continue as a going
concern for the foreseeable and for at least one year after the date of the statement of financial position.

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PART B – Indicators of Risks in the Going Concern Assumption

INDICATORS OF GOING CONCERN RISKS Yes/No Mitigating Factor / Comment

Financial Indicators
Does the entity have a net liability, or particularly a net No
current liability, position?

Are the entity’s borrowings and bank overdraft facilities No

approaching maturity, or is there a major repayment
due, with uncertainty as to prospects of renewal or
repayment?

Are the entity’s borrowings excessively based on non No

cash generating revaluations of assets?

Has there been a significant restructuring of debt in part N/A

driven by extended repayment terms?

Does the entity rely excessively on short-term No

borrowings to finance long-term assets?

Is the entity in breach of, or having difficulty in No

complying with, the terms of loan agreements?

Does the entity historically have, or is it forecasting, No

negative operating cash flows?

Have there been increases in debtors and inventory No

(often financed by creditors) without commensurate
increases in cash flow?

Are there arrears or discontinuance of dividends? N/A

Is there evidence of slowing in the payments to creditors No

on due dates?

Are interest outgoings greater than cash revenues? No

Has there been a change from credit to cash-on-delivery No

transactions with suppliers?

Is there a lack of sustainable cash flows from core No

business activities?

Are there other adverse key financial ratios, e.g. No

working capital ratio, gross profit ratio, inventory
turnover, interest cover, debt to equity ratio etc?

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PART B – Indicators of Risks in the Going Concern Assumption

INDICATORS OF GOING CONCERN RISKS Yes/No Mitigating Factor / Comment

Has the entity recorded material operating losses No
(particularly over several years)?

Does the entity need to seek new sources of finance or No

to dispose of substantial assets?

Has there been deterioration in the value of, or sales No

without replenishment of, assets used to generate cash
flows?

Operational Indicators
Is there excessive reliance on transactions with related No
parties?

Is there evidence of poor management such as the lack No

of non executive directors or poor documentation and
communication of decisions?

Has there been a loss of key management or staff No

without replacement?

Are there deficiencies in management information No

systems or lack of management response to information
received?

Is there a concentration of risk in a limited number of No

products or projects?

Has there been or is there rapid or unplanned No

development of business or expansion into non-core
areas without commensurate developments in
information systems, management expertise, financing
structures etc?

Is there a lack of adequate IT back-up and recovery No

procedures?

Is there growing expenditure on research without N/A

commensurate cash flow?

Does the entity have difficulty obtaining financing for No

necessary new product development or other necessary
investments?

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PART B – Indicators of Risks in the Going Concern Assumption

INDICATORS OF GOING CONCERN RISKS Yes/No Mitigating Factor / Comment

External Indicators
No
Is the entity operating in a declining industry or does it
have excessive dependence on a few product lines where
the market is depressed?
No
Have there been technical developments which reduce
the life cycle of a key product or render a key product
obsolete?
No
Are there fundamental changes in the market or
technology to which the entity is unable to respond?
No
Is there undue influence from a market dominant
competitor?
No
Are there potential losses on long-term contracts or
other uneconomic long-term commitments?
No
Has there been or is there likely to be adverse changes in
legislation or government policy?
No
Has there been or is there likely to be prolonged
industrial relations difficulties?
No
Are there pending legal proceedings against the entity
that may, if successful, result in judgements that could
not be met or could restrict trading opportunities?
No
Has there been or is there likely to be a loss of a major
market, franchise or license?
No
Are there shortages of important supplies or the loss of a
principle supplier?
No
Have there been any uninsured or underinsured disasters
such as drought, flood, fire fraud or sabotage?
No
Have there been instances of non-compliance with
capital or statutory requirements?

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PART C - Investigating Going Concern
Where we have identified a potential going concern problem (from Part B or whilst performing other audit
procedures) we perform additional procedures to gain assurance that there are no other factors which will affect
the going concern assumption. Set out below are a list of procedures that may be appropriate, many of these
procedures are undertaken as part of the ordinary course of the audit, however consideration should be given to
modifying or extending the procedures ordinarily performed. The list is not exhaustive and should be extended to
suit the individual circumstances.

We should consider the same period as that used by those charged with governance in making their assessment
(ISA 570.18). If their assessment covers a period less than one year from the date of approval of the financial
statements, and they have not disclosed that fact in the financial statements, we should do so within the section of
our report setting out the basis of our opinion.

PROCEDURES
 Obtain and review management’s cash flow, profit, and other relevant forecasts including forecasts
relating to significant purchases of investments or fixed assets. When analysing such forecasts we
should:
- assess the reliability of the underlying accounting data;
- assess material assumptions underlying the forecast, especially those which are sensitive or
susceptible to change or which are inconsistent with historical trends; and
- compare prior periods’ forecasts with historical results to assess the accuracy of management’s
forecasting capabilities; and
- compare the current period forecasts with results achieved to date.
 Review events after the statement of financial position date for items affecting the ability of the entity
to continue as a going concern.
 Analyse and review the most recent management accounts for evidence of improvement or
deterioration of financial position.
 Review the terms of debentures and loan agreements and borrowing facilities and determine whether
any have been breached or whether any require renewal before the next statement of financial position
date.
 Review minutes of the meetings of shareholders, board of directors and other important committees
for reference to financial difficulties.
 Enquire of the entity’s lawyers regarding litigation and claims.
 Confirm the existence, legality and enforceability of arrangements to provide or maintain financial
support with related parties and third parties and assess the financial ability and intentions of these
parties to provide funds.
 Consider the position of the Company concerning unfilled customer orders.
 Obtain written representations from management concerning plans for future action.

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 RESULTS
The Company has recorded profits for the years ended 31 December 20x1 and 31 December 20x1. We
have included emphasis of matter paragraph in the audit report. We have also obtained letter of support
from the head office.

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PART D - Evaluating Going Concern
If a possible going concern problem is identified we review management’s plans and obtaining written
representations from management regarding those plans. Additionally, we perform other procedures to obtain
sufficient evidence to determine whether a material uncertainty exists. The selection of the procedures should be
determined by an experienced team member. The list below is not exhaustive and should be extended to suit the
circumstances.

PROCEDURES
 Review management’s plans for future actions based on its going concern assessment.
 Obtain written representation from management concerning plans for future actions to improve the
financial situation and assess achievability of such plans.
 Document details of available facilities, unused credit lines, other borrowing capacity, including
extent utilised.
 Determine the effect on these facilities on: operating cash flow needs, capital commitments,
contingent liabilities and anticipated future losses.
 Document facilities falling due for renewal and determine the following: likelihood of renewal or
extension of due dates, possibility of entering into debt restructuring agreements, and any risk of non-
renewal together with the likely consequence.
 Analyse and discuss with management cash flow, profit and other relevant forecasts. These should be
the latest available before the date of the audit report. Assess capability of reducing overheads and
administrative expenditures.
 Determine the ability to postpone expenditures for maintenance or research and development.
 Consider the opportunities for capital calls, capital issues or additional owner contributions.
 Consider the possibility of varying dividend requirements.
 Consider the possibility of increasing cash contributions from subsidiaries or associates.
 Consider the possibility of delaying replacement of assets consumed in operations or of leasing rather
than purchasing certain assets.
 Consider the disposability of assets that are not operationally interdependent.
 Consider the possibility of using other assets for factoring, sale and leaseback, etc.
 Review the effect of related party transactions on the ability of the entity to pay its debts.
 Assess the reliability of any third party support by reviewing letters of support noting date of issue,
term/s of support, whether the letter is given under seal, has been minuted by the parent, and any other
terms. Consider whether the parent/bank has undertaken further acts to indicate their willingness to
support the Group and the ability of the parent/bank to provide such support. Assess the adequacy of
the support in light of the cash projections of the Group.
 Determine whether any disclosure of the going concern uncertainty is required / whether any
disclosure made is adequate.

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 RESULTS
The Company has recorded profit for the years ended 31 December 20x1 and 31 December 20x1. No
going concern issues were noted.

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