What is the auditor's responsibility regarding going concern? If management's assessment covers only 6 months from the reporting date, is that acceptable?
A core Audit & Assurance interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
The auditor must evaluate management's assessment of going concern and consider whether material uncertainties exist. ISA 570 requires management's assessment to cover at least 12 months from the reporting date. If it's only 6 months, that's a scope limitation, and I'd request management to extend it. If they refuse, I may need to modify the opinion. I perform procedures to challenge management's forecasts, such as reviewing cash flow projections, debt covenants, and subsequent events. If a material uncertainty exists, I ensure it's disclosed and consider a KAM or modified opinion.
WHAT INTERVIEWERS LISTEN FOR
- ✓Evaluate management's assessment
- ✓12-month minimum period required
- ✓Scope limitation if shorter
- ✓Perform procedures on forecasts
- ✓Consider disclosure and opinion
COMMON MISTAKES
- ✗Accepting less than 12 months without action
- ✗Not considering material uncertainty
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