ICAI Guidance Note and FAQ on Going Concern Key Considerations for Auditors amid COVID-19.
The going concern concept is a fundamental principle of accounting. It assumes that an entity will remain in business for the foreseeable future.
An entity is assumed to be a going concern in the absence of significant information to the contrary. An example of such contrary information would be inability to meet its obligations as they come due without substantial asset sales or debt restructurings.
Going concern is a critical assumption underlying the preparation and presentation of financial statements and important for all the stakeholders. The Companies (Auditor’s Report) Order 2020 requires the statutory auditor to report whether disposal of a substantial part of the assets has affected the going concern of a company. The new CARO 2020 specifically requires whether the auditor is of the opinion that no material uncertainty exists as on the date of the audit report that company is capable of meeting its liabilities existing at the date of balance sheet as and when they fall due within a period of one year from the balance sheet date. Also reporting with respect to default in repayment of loans/borrowings, and incurrence of cash losses is also aimed at assessing the financial health and as a corollary, the going concern of a company.
ICAI Guidance Note on Going Concern for Auditors amid COVID-19.
ICAI, in vow of the prevailing situation due to COVID-19 has issued a guide namely,
Going Concern Key Considerations for Auditors amid COVID-19.
The guidance highlights key areas of focus in the present situation in India. According to it, in completing work related to going concern in the current environment, auditors should focus on complete requirements as set out in SA 570 (Revised), Going Concern, with full consideration given to the entity’s specific circumstances before any conclusions are reached. In completing the work on going concern, the importance of exercising professional skepticism is amplified, particularly where management have determined that the current circumstances are not expected to have any material financial impact on the entity and that no material uncertainties related to going concern exist for the entity.
Auditors have also been advised to refer to the “Implementation Guide to SA 570 (Revised), Going Concern” issued by the Auditing and Assurance Standards Board of ICAI.
The guidance note focuses on the implications of the COVID-19 pandemic on the auditor’s assessment / work related to going concern, what matters should be considered by the auditor, responsibilities of both the management and the auditor’s etc.
This guidance includes specific 11 FAQs to deal with the various situations in the current environment
Download ICAI Guidance Note on Going Concern for Auditors amid COVID-19 Click Here >>
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