In this course · 5 of 6
Course 8
Sign off the results
6 lessons · 6 min
- 1What is the management representation letter, and must I sign it?
- 2What are audit adjustments, and why would the auditor change my accounts?
- 3What are the types of audit opinion in Hong Kong and what do they mean?
- 4How does a qualified audit report affect bank loans and IRD?
- 5What is going concern in an audit and what happens if there is doubt?
- 6What are the directors' responsibilities for the accounts, and the auditor's?
The short answer
Going concern means the company can keep operating for the foreseeable future. Management assesses it and the auditor tests that, covering at least twelve months from the date of the financial statements. Doubt must be disclosed, and the audit report may draw attention to it or be modified.
What it covers The financial statements assume the company will continue in business unless the directors intend to liquidate or cease trading, or have no realistic alternative. HKSA 570 (Revised) sets what the auditor does.
What the auditor does
- Asks management to assess going concern and evaluates that assessment.
- If management's assessment covers less than twelve months from the date of the financial statements, the auditor asks them to extend it to at least twelve months.
- Looks for signs of doubt such as losses, net current liabilities, loan defaults, loss of key customers or reliance on shareholder funding.
Possible reports
- Adequate disclosure of a material uncertainty: the opinion is unmodified, with a separate going-concern section.
- Inadequate disclosure: a qualified or adverse opinion.
- In extremely rare cases with multiple significant uncertainties: a disclaimer.
What owners can do
- Prepare a cash flow forecast.
- Get written confirmation of shareholder or bank support, where that support is real.
- Record plans (cost cuts, funding) in board minutes.
A going-concern paragraph is not an automatic loan refusal, but lenders will notice it.
Legal basis and sources
The law
- HKSA 570 (Revised) Going Concern
- HKSA 705
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
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