ACCA AA Syllabus E. Review And Reporting - Going Concern Review & Indicators - Notes 3 / 4
Going concern is vital as the FS must show a ‘true and fair view’
The auditor will undertake a number of procedures in the going concern review:
Look at the economic conditions of the industry at that time
Contact providers of finance to check they're happy to continue
Assess management intentions for the future
Review post Y/E cash flow statements, management accounts and budgets
Review management assumptions - are they reasonable
Conduct analytical review of the FS to check for worsening performance
Review correspondence with solicitors to ensure no likely actions or cases
Review correspondence with banks to provide evidence of continued good relations
Indicators of Going Concern
Technology changes in the industry
Suppliers unwilling to provide credit terms
Banks withdrawing loan facilities
Management plans for risky diversification
Cash-flow problems post year end or large cash outflows
Deterioration in key ratios
Loss of Key staff
Legal action against the company
Late payment of staff salaries, PAYE payments, VAT or supplier invoices
Sales of major assets without prior warning
Loss of key customer or supplier