SAS No. 16 Going Concern

Status

Revised by Auditing Standards Committee in Taiwan on 16 November, 1999.

Summary

When planning and performing audit procedures and in evaluating the results thereof, the auditor should consider the appropriateness of management’s use of the going concern assumption in the preparation of the financial statements.

When events or conditions have been identified which may cast significant doubt on the entity’s ability to continue as a going concern, the auditor should perform procedures that are relevant in this regard, which may include the following:

• Analyzing and discussing cash flow, profit and other relevant forecasts with management.
• Analyzing and discussing the entity’s latest available interim financial statements.
• Reviewing the terms of debentures and loan agreements and determining whether any have been breached.
• Reading minutes of the meetings of shareholders, those charged with governance and relevant committees for reference to financing difficulties.
• Inquiring of the entity’s lawyer regarding the existence of litigation and claims and the reasonableness of management’s assessments of their outcome and the estimate of their financial implications.
• Confirming the existence, legality and enforceability of arrangements to provide or maintain financial support with related and third parties and assessing the financial ability of such parties to provide additional funds.
• Considering the entity’s plans to deal with unfilled customer orders.
• Reviewing events after period end to identify those that either mitigate or otherwise affect the entity’s ability to continue as a going concern.

Based on the audit evidence obtained, the auditor should determine if, in the auditor’s judgment, a material uncertainty exists related to events or conditions that alone or in aggregate, may cast significant doubt on the entity’s ability to continue as a going concern.

If the use of the going concern assumption is appropriate but a material uncertainty exists, where adequate disclosure has been made in the financial statements, the auditor should express an unqualified opinion but modify the auditor’s report by adding an emphasis of matter paragraph that highlights the existence of a material uncertainty relating to the event or condition that may cast significant doubt on the entity’s ability to continue as a going concern and draws attention to the note in the financial statements that discloses the matters.

If adequate disclosure is not made in the financial statements, the auditor should express a qualified or adverse opinion, as appropriate. The report should include specific reference to the fact that there is a material uncertainty that may cast significant doubt about the entity’s ability to continue as a going concern.

If, in the auditor’s judgment, the entity will not be able to continue as a going concern, the auditor should express an adverse opinion if the financial statements have been prepared on a going concern basis.

Effective date

This Statement is effective from 31 December, 1999.