HKSA 570 - Going Concern

HKSA 570 (Revised) - Going Concern

1. INTRODUCTION

Scope of HKSA 570

HKSA 570 (Revised) deals with the auditor's responsibilities in the audit of financial statements relating to going concern and the implications for the auditor's report. (Ref: Para. A1)

Effective Date: This HKSA is effective for audits of financial statements for periods ending on or after 15 December 2016.

Going Concern Basis of Accounting

Under the going concern basis of accounting, the financial statements are prepared on the assumption that the entity is a going concern and will continue its operations for the foreseeable future. General purpose financial statements are prepared using the going concern basis of accounting, unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so.

Key Characteristics:

Assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business

Special purpose financial statements may or may not be prepared in accordance with a financial reporting framework for which the going concern basis of accounting is relevant

The going concern basis of accounting is not relevant for some financial statements prepared on a tax basis in particular jurisdictions

Responsibility for Assessment

Management's Responsibility:

Some financial reporting frameworks (e.g., HKAS 1) explicitly require management to make a specific assessment of the entity's ability to continue as a going concern

Even when no explicit requirement exists, if going concern is a fundamental principle, management must still assess the entity's ability to continue as a going concern

Factors Relevant to Management's Judgment:

The degree of uncertainty associated with the outcome of an event or condition increases significantly the further into the future the event or condition occurs

The size and complexity of the entity, the nature and condition of its business, and the degree to which it is affected by external factors affect the judgment

Any judgment about the future is based on information available at the time the judgment is made; subsequent events may result in outcomes inconsistent with reasonable judgments

Auditor's Responsibilities:

The auditor's responsibilities are to:

Obtain sufficient appropriate audit evidence regarding, and conclude on, the appropriateness of management's use of the going concern basis of accounting

Conclude, based on the audit evidence obtained, whether a material uncertainty exists about the entity's ability to continue as a going concern

These responsibilities exist even if the financial reporting framework does not include an explicit requirement for management to make a specific assessment

Important Limitation: The absence of any reference to a material uncertainty about the entity's ability to continue as a going concern in an auditor's report cannot be viewed as a guarantee as to the entity's ability to continue as a going concern.

目標	描述
(a)	獲取充分、適當的審計證據，並就管理層在編製財務報表時使用持續經營會計基礎的適當性得出結論
(b)	基於所獲取的審計證據，得出是否存在與可能對實體持續經營能力產生重大疑慮的事件或條件相關的重大不確定性
(c)	按照本準則進行報告

2. OBJECTIVES

The objectives of the auditor are:

Objective	Description
(a)	To obtain sufficient appropriate audit evidence regarding, and conclude on, the appropriateness of management's use of the going concern basis of accounting in the preparation of the financial statements
(b)	To conclude, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the entity's ability to continue as a going concern
(c)	To report in accordance with this HKSA

程序	描述
(a)	如果管理層尚未進行評估，要求管理層進行評估
(b)	評估管理層未來行動的計劃，結果是否可能改善情況，以及計劃是否可行
(c)	如果現金流量預測很重要，評估基礎數據的可靠性和假設的充分支持
(d)	考慮自管理層作出評估以來是否有任何額外事實或信息可用
(e)	要求管理層以及在適當情況下治理層提供書面陳述

3. REQUIREMENTS

3.1 Risk Assessment Procedures and Related Activities (Paragraphs 10-11)

Initial Assessment (Paragraph 10):

When performing risk assessment procedures as required by HKSA 315 (Revised), the auditor shall consider whether events or conditions exist that may cast significant doubt on the entity's ability to continue as a going concern. The auditor shall determine whether management has already performed a preliminary assessment:

If such an assessment has been performed:

- Discuss the assessment with management

- Determine whether management has identified events or conditions that, individually or collectively, may cast significant doubt on the entity's ability to continue as a going concern

- If so, discuss management's plans to address them

If such an assessment has not yet been performed:

- Discuss with management the basis for the intended use of the going concern basis of accounting

- Inquire of management whether events or conditions exist that, individually or collectively, may cast significant doubt on the entity's ability to continue as a going concern

Ongoing Alertness (Paragraph 11):

The auditor shall remain alert throughout the audit for audit evidence of events or conditions that may cast significant doubt on the entity's ability to continue as a going concern.

Examples of Events or Conditions That May Cast Significant Doubt (Ref: Para. A3)

Financial Indicators:

Net liability or net current liability position

Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment

Excessive reliance on short-term borrowings to finance long-term assets

Indications of withdrawal of financial support by creditors

Negative operating cash flows indicated by historical or prospective financial statements

Adverse key financial ratios

Substantial operating losses or significant deterioration in the value of assets used to generate cash flows

Arrears or discontinuance of dividends

Inability to pay creditors on due dates

Inability to comply with the terms of loan agreements

Change from credit to cash-on-delivery transactions with suppliers

Inability to obtain financing for essential new product development or other essential investments

Operating Indicators:

Management intentions to liquidate the entity or to cease operations

Loss of key management without replacement

Loss of a major market, key customer(s), franchise, license, or principal supplier(s)

Labor difficulties

Shortages of important supplies

Emergence of a highly successful competitor

Other Indicators:

Non-compliance with capital or other statutory or regulatory requirements (e.g., solvency or liquidity requirements for financial institutions)

Pending legal or regulatory proceedings against the entity that may, if successful, result in claims the entity is unlikely to satisfy

Changes in law or regulation or government policy expected to adversely affect the entity

Uninsured or underinsured catastrophes when they occur

Mitigating Factors:

The significance of such events or conditions often can be mitigated by other factors. For example:

The effect of an entity being unable to make normal debt repayments may be counterbalanced by management's plans to maintain adequate cash flows by alternative means (e.g., disposing of assets, rescheduling loan repayments, or obtaining additional capital)

The loss of a principal supplier may be mitigated by the availability of a suitable alternative source of supply

Considerations Specific to Smaller Entities (Ref: Para. A5-A6)

Size may affect ability to withstand adverse conditions

Small entities may respond quickly to exploit opportunities but may lack reserves to sustain operations

Conditions of particular relevance include:

Risk that banks and other lenders may cease to support the entity

Possible loss of a principal supplier, major customer, key employee

Loss of the right to operate under a license, franchise, or other legal agreement

3.2 Evaluating Management's Assessment (Paragraphs 12-14)

General Evaluation (Paragraph 12):

The auditor shall evaluate management's assessment of the entity's ability to continue as a going concern.

Period of Assessment (Paragraph 13):

In evaluating management's assessment, the auditor shall cover the same period as that used by management as required by the applicable financial reporting framework, or by law or regulation if it specifies a longer period.

Critical Rule: If management's assessment covers less than twelve months from the date of the financial statements as defined in HKSA 560, the auditor shall request management to extend its assessment period to at least twelve months from that date.

Consideration of All Relevant Information (Paragraph 14):

In evaluating management's assessment, the auditor shall consider whether management's assessment includes all relevant information of which the auditor is aware as a result of the audit.

Guidance on Evaluation (Ref: Para. A8-A13)

When Detailed Analysis is Not Required:

When there is a history of profitable operations and ready access to financial resources, management may make its assessment without detailed analysis

The auditor's evaluation may be made without performing detailed evaluation procedures if other audit procedures are sufficient

When Detailed Evaluation is Required:

Evaluating the process management followed to make its assessment

The assumptions on which the assessment is based

Management's plans for future action and whether they are feasible

Smaller Entity Considerations:

Management may rely on in-depth knowledge of the business rather than a detailed assessment

It may be appropriate to discuss medium and long-term financing with management

Continued support by owner-managers is often important

Auditor may obtain documentary evidence of subordination of owner-manager's loan or guarantees

Auditor may request written confirmation of terms and conditions of support arrangements

3.3 Period Beyond Management's Assessment (Paragraph 15)

The auditor shall inquire of management as to its knowledge of events or conditions beyond the period of management's assessment that may cast significant doubt on the entity's ability to continue as a going concern.

Key Points (Ref: Para. A14-A15):

The auditor remains alert to known events or conditions that will occur beyond the assessment period

The degree of uncertainty increases as events are further into the future

Indications need to be significant before the auditor needs to take further action

If such events or conditions are identified, the auditor may need to request management to evaluate the potential significance

Other than inquiry of management, the auditor has no responsibility to perform other audit procedures to identify events or conditions beyond the period assessed by management

3.4 Additional Audit Procedures When Events or Conditions Are Identified (Paragraph 16)

If events or conditions have been identified that may cast significant doubt on the entity's ability to continue as a going concern, the auditor shall obtain sufficient appropriate audit evidence to determine whether or not a material uncertainty exists through performing additional audit procedures, including consideration of mitigating factors.

Required Procedures:

Procedure	Description
(a)	Where management has not yet performed an assessment, request management to make its assessment
(b)	Evaluate management's plans for future actions, whether the outcome is likely to improve the situation, and whether plans are feasible
(c)	Where cash flow forecast is significant, evaluate reliability of underlying data and adequacy of support for assumptions
(d)	Consider whether any additional facts or information have become available since management made its assessment
(e)	Request written representations from management and, where appropriate, those charged with governance

Additional Audit Procedures That May Be Relevant (Ref: Para. A16)

Analyzing and discussing cash flow, profit, and other relevant forecasts with management

Analyzing and discussing the entity's latest available interim financial statements

Reading the terms of debentures and loan agreements and determining whether any have been breached

Reading minutes of meetings of shareholders, those charged with governance, and relevant committees

Inquiring of the entity's legal counsel regarding litigation and claims

Confirming the existence, legality, and enforceability of arrangements to provide or maintain financial support

Evaluating the entity's plans to deal with unfilled customer orders

Performing audit procedures regarding subsequent events

Confirming the existence, terms, and adequacy of borrowing facilities

Obtaining and reviewing reports of regulatory actions

Determining the adequacy of support for any planned disposals of assets

Evaluating Management's Plans (Ref: Para. A17)

Inquiries may include plans to:

Liquidate assets

Borrow money or restructure debt

Reduce or delay expenditures

Increase capital

Cash Flow Forecast Evaluation (Ref: Para. A18-A19)

Compare prospective financial information for recent prior periods with historical results

Compare prospective financial information for the current period with results achieved to date

Where assumptions include continued support by third parties, consider requesting written confirmation and evidence of their ability to provide such support

3.5 Auditor Conclusions (Paragraphs 17-20)

Conclusion on Going Concern Basis (Paragraph 17):

The auditor shall evaluate whether sufficient appropriate audit evidence has been obtained regarding, and shall conclude on, the appropriateness of management's use of the going concern basis of accounting.

Conclusion on Material Uncertainty (Paragraph 18):

Based on the audit evidence obtained, the auditor shall conclude whether, in the auditor's judgment, a material uncertainty exists related to events or conditions that, individually or collectively, may cast significant doubt on the entity's ability to continue as a going concern.

Definition: A material uncertainty exists when the magnitude of its potential impact and likelihood of occurrence is such that, in the auditor's judgment, appropriate disclosure of the nature and implications of the uncertainty is necessary for:

- (a) In the case of a fair presentation financial reporting framework, the fair presentation of the financial statements, OR

- (b) In the case of a compliance framework, the financial statements not to be misleading

Adequacy of Disclosures When Material Uncertainty Exists (Paragraph 19)

If the auditor concludes that management's use of the going concern basis of accounting is appropriate but a material uncertainty exists, the auditor shall determine whether the financial statements:

(a) Adequately disclose:

The principal events or conditions that may cast significant doubt

Management's plans to deal with these events or conditions

(b) Disclose clearly that:

There is a material uncertainty related to events or conditions that may cast significant doubt

Therefore, the entity may be unable to realize its assets and discharge its liabilities in the normal course of business

Adequacy of Disclosures When No Material Uncertainty Exists (Paragraph 20)

If events or conditions have been identified that may cast significant doubt but, based on audit evidence, the auditor concludes that no material uncertainty exists, the auditor shall evaluate whether the financial statements provide adequate disclosures about these events or conditions in view of the requirements of the applicable financial reporting framework.

3.6 Implications for the Auditor's Report (Paragraphs 21-24)

Use of Going Concern Basis Is Inappropriate (Paragraph 21)

Rule: If the financial statements have been prepared using the going concern basis of accounting but, in the auditor's judgment, management's use of the going concern basis is inappropriate, the auditor shall express an adverse opinion.

Guidance (Ref: Para. A26-A27):

This applies regardless of whether the financial statements include disclosure of the inappropriateness

When going concern basis is not appropriate, management may prepare financial statements on another basis (e.g., liquidation basis)

The auditor may be able to express an unmodified opinion on those financial statements if the other basis is acceptable and adequate disclosure is provided

The auditor may consider including an Emphasis of Matter paragraph

Use of Going Concern Basis Is Appropriate but Material Uncertainty Exists

Adequate Disclosure Made (Paragraph 22):

If adequate disclosure about the material uncertainty is made in the financial statements, the auditor shall express an unmodified opinion and include a separate section under the heading "Material Uncertainty Related to Going Concern" to:

(a) Draw attention to the note in the financial statements that discloses the matters set out in paragraph 19

(b) State that these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the entity's ability to continue as a going concern and that the auditor's opinion is not modified in respect of the matter

Inadequate Disclosure Made (Paragraph 23):

If adequate disclosure about the material uncertainty is not made in the financial statements, the auditor shall:

(a) Express a qualified opinion or adverse opinion, as appropriate, in accordance with HKSA 705 (Revised)

(b) In the Basis for Qualified (Adverse) Opinion section, state that:

A material uncertainty exists that may cast significant doubt on the entity's ability to continue as a going concern

The financial statements do not adequately disclose this matter

Management Unwilling to Make or Extend Its Assessment (Paragraph 24)

If management is unwilling to make or extend its assessment when requested to do so by the auditor, the auditor shall consider the implications for the auditor's report.

Guidance (Ref: Para. A35):

A qualified opinion or a disclaimer of opinion may be appropriate

It may not be possible for the auditor to obtain sufficient appropriate audit evidence regarding management's use of the going concern basis of accounting

3.7 Communication with Those Charged with Governance (Paragraph 25)

Unless all those charged with governance are involved in managing the entity, the auditor shall communicate with those charged with governance events or conditions identified that may cast significant doubt on the entity's ability to continue as a going concern.

Required Communications:

(a) Whether the events or conditions constitute a material uncertainty

(b) Whether management's use of the going concern basis of accounting is appropriate

(c) The adequacy of related disclosures in the financial statements

(d) Where applicable, the implications for the auditor's report

3.8 Significant Delay in the Approval of Financial Statements (Paragraph 26)

If there is significant delay in the approval of the financial statements by management or those charged with governance after the date of the financial statements, the auditor shall:

Inquire as to the reasons for the delay

If the auditor believes the delay could be related to events or conditions relating to the going concern assessment, perform additional audit procedures as described in paragraph 16

Consider the effect on the auditor's conclusion regarding the existence of a material uncertainty

情景	意見類型	需要的報告部分
持續經營基礎適當，存在重大不確定性，充分披露	無保留意見	"與持續經營相關的重大不確定性"部分
持續經營基礎適當，存在重大不確定性，披露不足	保留意見或否定意見	"保留（否定）意見的基礎"部分
持續經營基礎不適當	否定意見	標準否定意見報告
管理層不願意進行/延長評估	保留意見或無法表示意見	根據香港審計準則第705號（修訂）

4. AUDITOR'S REPORT ILLUSTRATIONS

Summary of Reporting Scenarios

Scenario	Opinion Type	Report Section Required
Going concern basis appropriate, material uncertainty exists, adequate disclosure	Unmodified opinion	"Material Uncertainty Related to Going Concern" section
Going concern basis appropriate, material uncertainty exists, inadequate disclosure	Qualified or Adverse opinion	"Basis for Qualified (Adverse) Opinion" section
Going concern basis inappropriate	Adverse opinion	Standard adverse opinion reporting
Management unwilling to make/extend assessment	Qualified opinion or Disclaimer	As per HKSA 705 (Revised)

Illustration 1: Unmodified Opinion with Material Uncertainty and Adequate Disclosure

Key Features:

Auditor has obtained sufficient appropriate audit evidence

Material uncertainty exists

Disclosure in financial statements is adequate

Opinion is unmodified (clean)

Separate section: "Material Uncertainty Related to Going Concern"

Example Wording:

"We draw attention to Note XXX in the financial statements, which indicates that the Company incurred a net loss of ZZZ during the year ended 31 December 20X1 and, as of that date, the Company's current liabilities exceeded its total assets by YYY. As stated in Note 6, these events or conditions, along with other matters as set forth in Note 6, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Our opinion is not modified in respect of this matter."

Illustration 2: Qualified Opinion with Material Uncertainty and Inadequate Disclosure

Key Features:

Material uncertainty exists

Financial statements are materially misstated due to inadequate disclosure

Effects are material but not pervasive

Qualified opinion expressed

Example Wording:

"As discussed in Note yy, the Company's financing arrangements expire and amounts outstanding are payable on 19 March 20X2. The Company has been unable to conclude re-negotiations or obtain replacement financing. This situation indicates that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. The financial statements do not adequately disclose this matter."

Illustration 3: Adverse Opinion with Material Uncertainty and No Disclosure

Key Features:

Material uncertainty exists

Financial statements omit required disclosures

Effects are material and pervasive

Adverse opinion expressed

Example Wording:

"The Company's financing arrangements expired and the amount outstanding was payable on 31 December 20X1. The Company has been unable to conclude re-negotiations or obtain replacement financing and is considering filing for bankruptcy. This situation indicates that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. The financial statements do not adequately disclose this fact."

主題	關鍵點
審計師目標	獲取充分適當審計證據，就持續經營基礎適當性得出結論；就重大不確定性得出結論；相應報告
風險評估	考慮可能產生疑慮的事件/條件；確定管理層是否進行初步評估；在整個審計過程中保持警覺
管理層評估	評估管理層的評估；涵蓋相同期間（至少自財務報表日期起12個月）；如少於12個月要求延長
超出評估期間	詢問管理層關於評估期間之後的事件/條件；除詢問外無責任執行其他程序
額外程序	要求管理層評估（如未進行）；評估計劃；分析預測；考慮後續信息；獲取書面陳述
重大不確定性	當潛在影響規模和發生可能性需要披露以實現公允列報或避免誤導時存在
充分披露	無保留意見，附"與持續經營相關的重大不確定性"部分
披露不足	保留意見或否定意見，取決於普遍性
不當使用	否定意見
管理層不願意	保留意見或無法表示意見
溝通	與治理層溝通事件/條件、重大不確定性、適當性、披露和報告影響
批准延遲	詢問原因；如與持續經營相關則執行額外程序

5. KEY TAKEAWAYS SUMMARY

Topic	Key Point
Auditor's Objective	Obtain sufficient appropriate audit evidence regarding appropriateness of going concern basis; conclude on material uncertainty; report accordingly
Risk Assessment	Consider events/conditions casting doubt; determine if management performed preliminary assessment; remain alert throughout audit
Management's Assessment	Evaluate management's assessment; cover same period (minimum 12 months from date of financial statements); request extension if less than 12 months
Period Beyond Assessment	Inquire of management about events/conditions beyond assessment period; no responsibility for other procedures beyond inquiry
Additional Procedures	Request management assessment if not done; evaluate plans; analyze forecasts; consider subsequent information; obtain written representations
Material Uncertainty	Exists when magnitude of potential impact and likelihood of occurrence require disclosure for fair presentation or to avoid misleading
Adequate Disclosure	Unmodified opinion with "Material Uncertainty Related to Going Concern" section
Inadequate Disclosure	Qualified or adverse opinion depending on pervasiveness
Inappropriate Use	Adverse opinion
Management Unwilling	Qualified opinion or disclaimer
Communication	Communicate with those charged with governance about events/conditions, material uncertainty, appropriateness, disclosures, and reporting implications
Delay in Approval	Inquire about reasons; perform additional procedures if related to going concern

HKSA 570 - Going Concern

HKSA 570 (Revised) - Going Concern

香港審計準則第570號（修訂）- 持續經營

全面雙語學習筆記

1. INTRODUCTION

Scope of HKSA 570

Going Concern Basis of Accounting

Responsibility for Assessment

2. 目標

2. OBJECTIVES

3. 要求

3.1 風險評估程序及相關活動（第10-11段）

可能產生重大疑慮的事件或條件示例

小型實體的考慮因素

3.2 評估管理層的評估（第12-14段）

評估指引

3.3 超出管理層評估期間的期間（第15段）

3.4 當識別出事件或條件時的額外審計程序（第16段）

可能相關的額外審計程序

評估管理層的計劃

現金流量預測評估

3.5 審計師的結論（第17-20段）

當存在重大不確定性時披露的充分性（第19段）

當不存在重大不確定性時披露的充分性（第20段）

3.6 對審計師報告的影響（第21-24段）

使用持續經營會計基礎不適當（第21段）

使用持續經營會計基礎適當但存在重大不確定性

管理層不願意進行或延長其評估（第24段）

3.7 與治理層的溝通（第25段）

3.8 財務報表批准的顯著延遲（第26段）

3. REQUIREMENTS

3.1 Risk Assessment Procedures and Related Activities (Paragraphs 10-11)

Examples of Events or Conditions That May Cast Significant Doubt (Ref: Para. A3)

Considerations Specific to Smaller Entities (Ref: Para. A5-A6)

3.2 Evaluating Management's Assessment (Paragraphs 12-14)

Guidance on Evaluation (Ref: Para. A8-A13)

3.3 Period Beyond Management's Assessment (Paragraph 15)

3.4 Additional Audit Procedures When Events or Conditions Are Identified (Paragraph 16)

Additional Audit Procedures That May Be Relevant (Ref: Para. A16)

Evaluating Management's Plans (Ref: Para. A17)

Cash Flow Forecast Evaluation (Ref: Para. A18-A19)

3.5 Auditor Conclusions (Paragraphs 17-20)

Adequacy of Disclosures When Material Uncertainty Exists (Paragraph 19)

Adequacy of Disclosures When No Material Uncertainty Exists (Paragraph 20)

3.6 Implications for the Auditor's Report (Paragraphs 21-24)

Use of Going Concern Basis Is Inappropriate (Paragraph 21)

Use of Going Concern Basis Is Appropriate but Material Uncertainty Exists

Management Unwilling to Make or Extend Its Assessment (Paragraph 24)

3.7 Communication with Those Charged with Governance (Paragraph 25)

3.8 Significant Delay in the Approval of Financial Statements (Paragraph 26)

4. 審計師報告示例摘要

報告情景摘要

4. AUDITOR'S REPORT ILLUSTRATIONS

Summary of Reporting Scenarios

Illustration 1: Unmodified Opinion with Material Uncertainty and Adequate Disclosure

Illustration 2: Qualified Opinion with Material Uncertainty and Inadequate Disclosure

Illustration 3: Adverse Opinion with Material Uncertainty and No Disclosure

5. 關鍵要點總結

5. KEY TAKEAWAYS SUMMARY

50 Multiple Choice Questions

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