Going concern

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

27 August 2011 Sir

If a company is not having Fixed Assets(being sold out) and not having any turnover and its going to wind up in near future, what points we are required to mention in Audit Report regarding Going Concern Convention.

Thankyou.

CA. Vikash Dwivedi

CA. Vikash Dwivedi (Expert)
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30 August 2011 under SA570 on Going concern there are some idicators given to ascertain goning concern viability of a company. but those idicators are from Auditors point of veiw to assess existence of assumption of GC.
these are Financial, Operational and Other idicators.
No FA and turnover comes under financial idicators.

Querist : Anonymous

Querist : Anonymous (Querist)

01 September 2011 Thankyou sir
But in this case we know that company has stopped its operations and going to wind up soon so i think management is supposed to mention this fact in the Notes to Accounts.
Are we required to mention this fact in our Audit Report?
If yes how to mention this point?

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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26 July 2024 Yes, as an auditor, you are required to address the going concern assumption in your audit report when a company is facing circumstances that might cast significant doubt on its ability to continue as a going concern. Even if the company has ceased operations and is expected to wind up soon, this should be disclosed in your audit report. Here’s how you should approach this:

### Points to Mention in the Audit Report

1. **Assessment of Going Concern**:
- **Describe the Situation**: Mention that the company has stopped its operations, is not generating any turnover, and has sold off its fixed assets. State clearly that the company is expected to wind up in the near future.

2. **Management’s Disclosure**:
- **Notes to Accounts**: Confirm whether the management has disclosed these facts in the Notes to Accounts. The management should ideally mention the cessation of operations, the plan for winding up, and the impact on the financial statements.

3. **Impact on Financial Statements**:
- **Financial Statements Preparation**: Note that the financial statements have been prepared on a basis other than a going concern. If the financial statements are prepared assuming the company will continue as a going concern, it should be stated explicitly that this assumption is not valid.

4. **Auditor’s Opinion**:
- **Basis for Opinion**: Include a paragraph in the audit report addressing the basis for your opinion on the financial statements given the going concern uncertainty.
- **Emphasis of Matter**: If the financial statements have been prepared on a going concern basis despite the company's situation, include an "Emphasis of Matter" paragraph. This paragraph should draw attention to the fact that the company is not a going concern and highlight the management's disclosure in the Notes to Accounts.

5. **Going Concern Disclosures**:
- **Disclosure in the Audit Report**: Include a specific mention that the audit report reflects the uncertainty surrounding the company's ability to continue as a going concern. If there are no adequate disclosures in the financial statements or Notes to Accounts, you must modify your opinion accordingly.

### Sample Audit Report Paragraph

**Emphasis of Matter** (if applicable):
```
We draw attention to Note X of the financial statements, which describes the company’s cessation of operations and its intention to wind up. As detailed in Note X, the company has sold its fixed assets and is not generating any turnover. This raises substantial doubt about the company's ability to continue as a going concern. The financial statements have been prepared on a going concern basis, which is not appropriate in the circumstances. Our opinion is not modified in this respect.
```

**Basis for Qualified Opinion** (if applicable):
```
In our opinion, because of the significance of the matters described in the Emphasis of Matter paragraph, the financial statements do not present a true and fair view of the company's financial position and performance. The company’s financial statements have been prepared on the assumption that it is a going concern, which is not appropriate given the company’s current circumstances and intended wind-up.
```

### Key Points to Consider:

- **Management Responsibility**: Ensure that the management’s responsibility for the disclosures related to going concern is reflected in the audit report.
- **Regulatory Compliance**: Verify that your reporting complies with the relevant accounting standards and auditing regulations applicable in your jurisdiction.

By addressing these points in your audit report, you will provide a clear picture of the company's financial situation and the appropriateness of the going concern assumption, ensuring transparency for the users of the financial statements.