a. Objectives of the Auditor in the Area of Going Concern (ISA 570)

The objectives of the auditor in relation to going concern are:

1. Assess Management’s Use of the Going Concern Assumption:
   • Evaluate whether the management’s assumption that the entity will continue operating for the foreseeable future is appropriate.
2. Identify Material Uncertainty:
   • Determine whether there is any material uncertainty that could cast doubt on the entity’s ability to continue as a going concern.
3. Evaluate Financial Statement Disclosures:
   • Ensure adequate disclosures are made in the financial statements regarding any identified material uncertainty.
4. Report Appropriately:
   • Based on the evidence obtained, issue an appropriate audit opinion considering going concern issues.

b. Going Concern Assumption and Implications if Not a Going Concern

Going Concern Assumption:

• The going concern assumption implies that the entity will continue its operations for the foreseeable future and has no intention or necessity to liquidate or curtail its operations significantly.
• Financial statements are prepared under this assumption, presenting assets and liabilities based on their expected realization and settlement in the normal course of business.

Implications if Not a Going Concern:

• The entity’s financial statements must be prepared on a breakup basis.
• Adjustments will include:
  1. Assets written down to net realizable value.
  2. Liabilities adjusted to reflect amounts payable upon liquidation.
  3. Recognition of provisions for costs related to closure or liquidation.
• Adequate disclosures must be made, highlighting the basis of preparation and the implications on asset valuations and liabilities.

c. Going Concern Duties of the Directors

1. Assessment Responsibility:
   • Directors are responsible for assessing the company’s ability to continue as a going concern.
2. Disclosure Obligation:
   • They must disclose any material uncertainties related to going concern in the financial statements.
3. Basis of Preparation:
   • Ensure that the financial statements are prepared using the appropriate basis (going concern or breakup basis) based on their assessment.

d. Risk Assessment Procedures for Going Concern (ISA 570)

The auditor must perform the following procedures to evaluate going concern risks:

1. Review Management’s Assessment:
   • Obtain and evaluate management’s assessment of the company’s ability to continue as a going concern for at least 12 months from the reporting date.
2. Analyze Financial Data:
   • Review cash flow forecasts, budgets, and financial projections to assess liquidity and solvency risks.
3. Examine Subsequent Events:
   • Identify events after the reporting period that may affect the entity’s ability to continue as a going concern.
4. Evaluate Loan Covenants and Funding Arrangements:
   • Review compliance with loan covenants and assess the availability of financing or additional funding.
5. Assess Operational Indicators:
   • Examine factors such as employee turnover, loss of key customers, or reliance on a single supplier that may impact operations.
6. Review Board Minutes and Correspondence:
   • Analyze minutes of meetings and communications with stakeholders for indications of financial distress.
7. Consider External Factors:
   • Evaluate industry trends, market conditions, and economic factors that may influence the entity’s financial position.
8. Obtain Written Representations:
   • Secure written representations from management regarding their plans and the validity of the going concern assumption.