The Auditor’s Consideration of an Entity’s Ability to ...

1 An entity s Ability to Continue as a going Concern811AU-C Section 570 The Auditor s Consideration of an entity sAbility to Continue as a going concern (Supersedes SAS No. 126.)Source: SAS No. 132; SAS No. 134; SAS No. for audits of financial statements for periods ending on orafter December 15, 2017, unless otherwise of This section addresses the auditor's responsibilities in the audit of fi-nancial statements relating to the entity 's Ability to continue as a going concernand the implications for the auditor's report. This section applies to all auditsof a complete set of financial statements, regardless of whether the financialstatements are prepared in accordance with a general purpose or a special pur-pose the going concern basis of accounting, the financial statementsare prepared on the assumption that the entity is a going concern and will con-tinue its operations for a reasonable period of time.

2 A complete set of generalpurpose financial statements is prepared using the going concern basis of ac-counting, unless the liquidation basis of accounting is appropriate. (Ref: .A2).03 Special purpose financial statements2may or may not be prepared inaccordance with an applicable financial reporting framework for which the go-ing concern basis of accounting is relevant. As a result, when the going concernbasis of accounting is not relevant, the requirement of this section to obtainsufficient appropriate audit evidence regarding, and conclude on, the appro-priateness of management's use of the going concern basis of accounting do notapply. However, irrespective of whether the going concern basis of accounting isrelevant in the preparation of special purpose financial statements, the require-ments of this section apply regarding the auditor's responsibilities to performthe , based on the audit evidence obtained, whether substan-tial doubt exists about an entity 's Ability to continue as a goingconcern for a reasonable period of the possible financial statement effects, including theadequacy of disclosure regarding the entity 's Ability to continueas a going concern for a reasonable period of time1 General purposeandspecial purpose frameworksare defined in section 700,Forming an Opinionand Reporting on Financial Statements, and section 800.

3 Special considerations Audits of FinancialStatements Prepared in Accordance With Special Purpose Frameworks, 800 addresses audits of a complete set of financial statements prepared in accordancewith special purpose frameworks. 2021, AICPAAU-C auditor's responsibilities under this section apply even if the ap-plicable financial reporting framework used in the preparation of the financialstatements does not include an explicit requirement for management to makea specific evaluation of the entity 's Ability to continue as a going for the Evaluation of the entity s Ability toContinue as a going ConcernWhen Management Is Required to Make a Specific Evaluation Under theApplicable Financial Reporting financial reporting frameworks explicitly require managementto evaluate the entity 's Ability to continue as a going concern for a reasonableperiod of time and provide disclosures related to the entity 's Ability to continueas a going concern .

4 For example, FASBA ccounting Standards Codification (ASC) requires management to evaluate whether there are conditions andevents, considered in the aggregate, that raise substantial doubt about an en-tity's Ability to continue as a going concern within one year after the date thatthe financial statements are issued (or within one year after the date that thefinancial statements are available to be issued, when applicable).3 Similarly,GASB Statement No. 56,Codification of Accounting and Financial ReportingGuidance Contained in the AICPA Statements on Auditing Standards,requiresfinancial statement preparers to evaluate whether there is substantial doubtabout a governmental entity 's Ability to continue as a going concern for 12months beyond the date of the financial statements.

5 GASB Statement No. 56further requires that, if information is currently known to the governmental en-tity that may raise substantial doubt shortly thereafter (for example, within anadditional three months), such information should also be orregulation may also set forth requirements regarding management's responsi-bility to evaluate the entity 's Ability to continue as a going concern for a definedperiod of time and related financial statement disclosures. (Ref: par..A3).06 Management's evaluation of the entity 's Ability to continue as a goingconcern for a reasonable period of time involves making a judgment, at a par-ticular point in time, about inherently uncertain future outcomes of conditionsor events. The following factors are relevant to that degree of uncertainty associated with the outcome of a con-dition or event increases significantly the further into the futurea condition or event or the outcome occurs.

6 For that reason, mostfinancial reporting frameworks that require an explicit manage-ment evaluation specify the period for which management is re-quired to take into account all available size and complexity of the entity , the nature and conditionof its business, and the degree to which it is affected by externalfactors affect the judgment regarding the outcome of conditionsor judgment about the future is based on conditions or eventsthat are known and reasonably knowable at the date that the fi-nancial statements are issued (or at the date that the financial3"Pending Content" in FASBA ccounting Standards Codification(ASC) 16 of GASB Statement No. 56,Codification of Accounting and Financial ReportingGuidance Contained in the AICPA Statements on Auditing 2021, AICPAAn entity s Ability to Continue as a going Concern813statements are available to be issued, when applicable).

7 Subse-quent events may result in outcomes that are inconsistent withjudgments that were reasonable at the time they were made. (Ref:par..A4 .A5)When Management Is Not Required to Make a Specific Evaluation Underthe Applicable Financial Reporting other financial reporting frameworks, there may be no explicit re-quirement for management to make a specific assessment of the entity 's abilityto continue as a going concern . Nevertheless, when the going concern basis of ac-counting is a fundamental principle in the preparation of financial statements,as discussed in paragraphs .02 .03, the preparation of the financial statementsrequires management to assess the entity 's Ability to continue as a going con-cern even if the financial reporting framework does not include an explicit re-quirement to do Limitations in Evaluating the entity s Ability to Continue as aGoing potential effects of inherent limitations on the auditor's Ability todetect material misstatements are greater for future events or conditions, con-sidered in the aggregate, that raise substantial doubt about the entity 's abilityto continue as a going concern for a reasonable period of time.

8 The auditor can-not predict such future conditions or events. Accordingly, the absence of anyreference to substantial doubt about the entity 's Ability to continue as a goingconcern for a reasonable period of time in an auditor's report cannot be viewedas a guarantee of the entity 's Ability to continue as a going concern for a rea-sonable period of section is effective for audits of financial statements for periodsending on or after December 15, objectives of the auditor are as obtain sufficient appropriate audit evidence regarding, and toconclude on, the appropriateness of management's use of the go-ing concern basis of accounting, when relevant, in the preparationof the financial conclude, based on the audit evidence obtained, whether sub-stantial doubt about an entity 's Ability to continue as a going con-cern for a reasonable period of time evaluate the possible financial statement effects, including theadequacy of disclosure regarding the entity 's Ability to continueas a going concern for a reasonable period of report in accordance with this purposes of this section, the following term has the meaning at-tributed as follows.

9 2021, AICPAAU-C EvidenceReasonable period of period of time required by the ap-plicable financial reporting framework or, if no such requirementexists, within one year after the date that the financial state-ments are issued (or within one year after the date that the finan-cial statements are available to be issued, when applicable). (Ref:par..A6)RequirementsRisk Assessment Procedures and Related ActivitiesConditions or Events That Raise Substantial Doubt About an entity s Abilityto Continue as a going performing risk assessment procedures as required by section315,Understanding the entity and Its Environment and Assessing the Risks ofMaterial Misstatement,5the auditor should consider whether there are condi-tions or events, considered in the aggregate, that raise substantial doubt aboutan entity 's Ability to continue as a going concern for a reasonable period of doing so, the auditor should determine whether management has performeda preliminary evaluation of whether such conditions or events exist: (Ref.)

10 A16) such an evaluation has been performed, the auditor should dis-cuss the evaluation with management and determine whethermanagement has identified conditions or events that raise sub-stantial doubt about an entity 's Ability to continue as a going con-cern for a reasonable period of time and, if so, understand man-agement's plans to address such an evaluation has not yet been performed, the auditorshould discuss with management the basis for the intended useof the going concern basis of accounting and inquire of manage-ment whether conditions or events exist that raise substantialdoubt about an entity 's Ability to continue as a going concern fora reasonable period of Alert Throughout the Audit for Audit Evidence About Conditionsor auditor should remain alert throughout the audit for audit ev-idence of conditions or events that raise substantial doubt about an entity 'sability to continue as a going concern for a reasonable period of time.