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Going concern concept

Gudipati Roja (Audit manager) (131 Points)

12 September 2018

Hi all,
Greetings of the day...!!

company incorporated in FY 12-13, and it is loss making all these years, accumulated losses more than capital,
can this be the trigger point for auditor to report that going concern concept is violated....if yes, what are the consequences.??

Thanks in advance

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5 Replies

Pranjali (intern) (2216 Points)
Replied 12 September 2018

Although there are no specific procedures as to how a CA arrives at an opinion that the going concern assumption is violated, however, negative trends like recurring losses can trigger a CA to mention a potential going concern problem. Let me know if you find this helpful :)

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CA Raj Doshi (Practising CA) (8799 Points)
Replied 12 September 2018

There must be factors coupled with affirmation from management with regards to a threat to going concern. Auditor should completely refrain from mentioning such pointer unless it is 10000% sure. Further the financials must be prepared on Net realisable value basis if the going concern assumption is invalid.

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Gudipati Roja (Audit manager) (131 Points)
Replied 14 September 2018

Thank you Miss.Pranjali and Raj C Doshi sir for the reply...it is really helpful.

But what kind of confirmation we have to get from client for not mentioning such point in audit report.

CA Raj Doshi (Practising CA) (8799 Points)
Replied 14 September 2018

You should put forward your point that coz of these xyz factors you find a threat to going concern. If they disagree to it, then they will open up about the positive side happening in next Financial year i.e 2018-19 ( Assuming you are auditing FY 2017-18 ). Some big sales order in next fY will boost your confidence.

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