| 1 | Review if there are indicators that may cast significant doubt on applying the going concern assumption
[Refer para A3 of SA 570 and chapter 3 of Implementation Guide to SA 570(Revised)] | | |
| I | Is the net worth of the concern negative? | Annexure 1 | |
| II | Does the concern use long term borrowings to fund their short-term requirements? | Annexure 2 | |
| III | Whether the key financial ratios of the concern are adverse? (Current Ratio, Debt Equity Ratio, Net Profit Ratio, EPS, Return on Equity etc.) | Annexure 3 | |
| IV | Whether the concern has suffered substantial operating / cash losses in the previous years? | - | |
| V | Is there a steady decline in the rate of profitability of the concern? | Annexure 4 | |
| VI | Is there substantial negative cash flows from the operations of the concern? | Annexure 5 | |
| VII | Whether the declaration and payment of dividends are regular or are there any arrears or discontinuance in payment of dividends? | | |
| VIII | Is the concern regular in paying its creditors on due dates? | | |
| IX | Whether the concern has complied with the terms of its loan agreements with regard to payment of interest and principal on due dates? | | |
| X | Are there substantial loans from directors (in case of small concerns)? | | |
| XI | Has the concern entered into any scheme of arrangement with the creditors for reduction of liability? | | |
| XII | Check if there has been any loss of Key Managerial Personnel without any replacement? | | |
| XIII | Whether the concern has suffered loss of major market, franchise, licence, or any major supplier, etc. and no alternative measures have been taken (E.g.: loss of principal supplier mitigated by shifting to new supplier, etc.) | | |
| XIV | Has the concern complied with all necessary statutory compliances? | | |
| XV | Whether any change in Government policy has affected/is likely to affect the concern? | | |
| XVI | Whether the assumptions underlying the forecast appear appropriate in circumstances? (Compare the prospective data for recent periods with historical results) | | |
| XVII | Was there any substantial loss of any plant and machinery which forms an important part in functioning of business of the concern? | | |
| XVIII | Whether the management has got any of the following plans for future actions: | | |
| (a) to liquidate any assets - | | |
| (b) to borrow money or restructure any debt - | | |
| (c) to delay any expenditure - | | |
| (d) to increase its capital - | | |
| 2 | If there are indicators that may cast significant doubt on going concern assumption, review business plan and projected future cash flow by understanding the assumption, reasonableness of assumptions and assess possibility of turnaround based on which accept using going concern assumption for balance sheet preparation. | | |
| 2.1 | Audit evidence to be obtained to establish the fact that these plans are feasible, and are likely to be implemented and the outcome of these plans will improve the situation & also seek management representation wherever required regarding these plans | | |
| Additionally, auditors are required to evaluate the adequacy of disclosures when no material uncertainty exists. | | |
| CONCLUSION: | | |
