Assumption of the going concern of the audited entity. Federal rules (standards) of auditing
RULE (STANDARD) N 11.
APPLICABILITY OF THE CONTINUITY ASSUMPTION
ACTIVITIES OF THE AUDITED PERSON
(introduced by the Decree of the Government of the Russian Federation of 04.07.2003 N 405)
Introduction
1. This federal audit rule (standard) , developed taking into account international auditing standards, establishes uniform requirements in relation to the auditor's actions to verify the legality of the application by the audited entity going concern assumptions in the preparation of financial (accounting) statements, including when considering the assessment presented by the management of the audited entity of the ability of the specified entity to continue to continuously carry out its activity.
2. The going concern assumption is the basic principle of preparation of financial (accounting) statements. In accordance with the going concern basis, it is usually assumed that the audited entity will continue to carry out its financial and economic activities for 12 months of the year following the reporting year, and has no intention or need to liquidate, terminate financial economic activity or seeking protection from creditors. Assets and liabilities are accounted for on the basis that the audited entity will be able to fulfill its obligations and realize its assets in the course of its activities.
Factors influencingfor business continuity
3. Since the assumption about business continuity is one of the basic principles of preparation of financial (accounting) statements, the responsibility of the management of the audited entity is to assess the ability of the audited entity to continue its continuous activity , even if the procedure for the preparation of financial (accounting) statements applicable in these conditions does not provide for an explicit requirement to do so.
4. If the audited entity has a long-term experience of profitable operations and free access to financial resources, its management can give its assessment without conducting a detailed analysis.
5. The audited entity's assessment of the assumption of going concern is associated with making at a specific point in time a professional judgment about the facts of economic activity, which are uncertain as of the date of the financial (accounting) statements. In this regard, it should be taken into account that:
Typically, the level of uncertainty associated with the outcome of an event or condition increases significantly with the increase in the time interval between judgment and exposure to conditional facts;
Any influence of a contingent fact in the future is based on the information available at the time of drawing up the financial (accounting) statements, therefore, subsequent events may conflict with professional judgment, which was reasonable at the time of its issuance;
The size and complex structure of the audited entity, the nature and conditions of its activities, as well as the degree of impact on the audited entity external factors affect professional judgment about the impact of contingent facts.
6. Doubt in the applicability of the going concern assumption may arise for the auditor when reviewing the financial (accounting) statements or when performing other audit procedures. Indicators on the basis of which there may be doubt about the applicability of the going concern assumption are the following:
a) financial signs:
- negative value net assets or failure to meet established net asset requirements;
- borrowed funds, the repayment period of which is approaching, in the absence of a real prospect of repayment or extension of the loan term, or unjustified use short-term loans to finance long-term assets;
- change in the payment scheme for goods (work performed, services rendered) to suppliers on the terms of a commercial loan or payment by installments in comparison with settlements as the goods are delivered (work performed, services rendered);
- significant deviation of the values of the main coefficients characterizing financial position the audited entity, from normal (usual) values;
- inability to repay accounts payable in due time;
- failure to provide financing for business development or other important investments;
- significant losses from core activities;
- difficulties in complying with the terms of the loan agreement;
- arrears in payment or termination of payment of dividends;
- economically irrational debentures;
- signs of bankruptcy established by law Russian Federation;
b) production characteristics:
- dismissal of key management personnel without proper replacement;
- loss of sales market, license or main supplier;
- labor problems or a shortage of significant capital goods;
- significant dependence on the successful implementation of a specific project;
- a significant volume of sales of raw materials and materials, comparable to the volume of proceeds from the sale of products (works, services) or exceeding it;
c) other signs:
- non-compliance with the requirements for the formation authorized capital the audited entity established by the legislation of the Russian Federation;
- lawsuits against the audited entity, which are in the process of consideration and may, if the plaintiff succeeds, end with a court decision that is not feasible for of this person;
- changes in legislation or changes in the political situation.
This list of features is not final. In addition, the presence of one or more features is not always sufficient evidence of the inapplicability of the going concern assumption when preparing the financial (accounting) statements of the audited entity.
The value of the listed signs may decrease under the influence of other signs. For example, the inability of the auditee to make payments in the usual way can be eliminated by the actions of its management to ensure sufficient receipts. Money from other sources, such as assets and liabilities, restructuring payments in return for loans or attracting additional investment. Likewise, the loss of a major supplier can be offset by the emergence of an alternative source of supply.
7. When expressing an opinion on the reliability of the financial (accounting) statements of the audited entity, the auditor should consider the entire set of factors that have and (or) are capable of influencing the ability of this entity to continue activities and fulfill its obligations for at least 12 months following the reporting period , and these factors should be disclosed in the financial (accounting) statements. The auditor considers the appropriateness of the management of the audited entity's use of the going concern assumption even if the requirements for the preparation of financial (accounting) statements do not provide for the responsibility of the management of the audited entity to specifically assess the ability of the audited entity to continue as a going concern.
The auditor cannot predict future events or conditions that may cause the entity to terminate as a going concern, so the absence of any reference to going concern uncertainties in the auditor's report cannot be considered a guarantee of the auditee's ability to continue as a going concern.
Auditor planning and verification activitiesapplying the continuity assumptionactivities of the audited entity
8. In planning the audit, the auditor should consider whether there are any events or conditions that give rise to significant doubt about the ability of the auditee to continue to activity is continuous.
9. During the audit, the auditor should carefully monitor whether there is evidence of the existence of factors that give rise to significant doubts about the ability of the audited entity to continue as a going concern. If such factors are identified, the auditor should consider whether they affect the auditor's assessment of the components of audit risk.
10. The auditor considers going concern considerations when planning the audit, as such consideration allows them to be discussed in a timely manner with the management of the audited entity, as well as during the audit.
11. In some cases, the employees of the audited entity themselves may conduct a preliminary assessment of the applicability of the going concern assumption at the initial stages of the audit. In this case, the auditor checks such an assessment to determine whether the management of the audited entity has identified any factors related to the going concern assumption, and if so, what are the related plans of management.
12. If the audited entity has not yet conducted a preliminary assessment of the applicability of the going concern assumption, the auditor asks him if there are any financial, production and other factors specified in paragraph 6 of this rule (standard) audit activity... The auditor may ask the auditee to make such an assessment, especially in cases where the auditor has already identified factors that affect the going concern assumption.
13. The auditor analyzes the consequences of the identified factors when conducting a preliminary assessment of the components of audit risk. The presence of such factors can affect the nature, timing and extent of audit procedures.
14. The auditor should review the assessment given by the management of the audited entity to the ability of the audited entity to continue as a going concern for at least 12 months following the reporting period. The assessment by the management of the audited entity of the ability of the audited entity to carry out its business as a going concern is the main factor in the auditor's analysis of the possibility of going concern.
When analyzing the assessment made by management of the audited entity, the auditor considers the procedure by which management made its assessment, the assumptions on which such assessment was based, and management's plans for future actions. The auditor considers whether all information that becomes known to the auditor as a result of the audit procedures has been taken into account in making the assessment.
15. The auditor should ask the auditee for information about whether he is aware of any events or conditions that are beyond a period of 12 months from the date of the reporting date and that may give rise to significant doubts about the ability of the auditee to continue as a going concern.
16. The auditor should be careful about the likelihood of the existence of known events (planned or otherwise) or conditions that may occur in the future and which may call into question the principle of assumption of a going concern in the preparation of financial (accounting) statements. The auditor may become aware of such factors in planning or performing the audit, including in the course of audit procedures relating to events after the reporting date.
17. Since the degree of uncertainty associated with the consequences of any factors increases with their remoteness in time, the auditor should consider whether additional actions are appropriate only if the signs of problems associated with the assumption of going concern of the audited entity are significant. ... The auditor has the right to require the audited entity to assess the potential significance of contingent factors in terms of their impact on the possibility of going concern.
18. The auditor is not required to develop procedures (other than sending a request to the auditee) to check for signs of factors that give rise to significant doubts about the auditee's ability to continue as a going concern and that go beyond a period of at least 12 months from the date of the reporting date.
Additional audit proceduresin case of identification of factors related to the assumptionthe continuity of the audited entity
19. If factors are identified that give rise to significant doubts about the ability of the audited entity to continue its activity continuously, the auditor should:
- check the plans of the auditee in relation to future activities based on its assessment of going concern assumption;
- by performing the necessary audit procedures to collect reliable audit evidence in order to confirm or deny the presence of factors of material uncertainty, including considering the consequences of any plans of the auditee and possible mitigating circumstances;
- require managers of the audited entity to provide written information regarding their plans for the future.
20. Factors that give rise to significant doubt about the ability of the auditee to continue as a going concern may be identified in the course of planning the engagement or performing audit procedures. The process of considering such factors continues as the audit progresses. In the event that the auditor believes that such factors give rise to significant doubts about the ability of the audited entity to continue as a going concern, certain procedures take on additional importance. The auditor asks the audited entity for information regarding its future activities, including plans for generating income, borrowed money and debt restructuring, reducing or postponing costs, or increasing share capital. The auditor also considers whether any additional facts or information has emerged since the auditee conducted its own going concern assessment. The auditor should strive to obtain reliable audit evidence that management's plans are feasible and that the situation will improve as a result of their implementation.
21. The number of audit procedures in the case provided for in paragraph 20 of this rule (standard) of auditing include:
- analysis and discussion with the management of the audited entity of forecasts regarding the movement financial flows, income, etc .;
- analysis and discussion of the latest available interim financial (accounting) statements of the audited entity;
- analysis of the conditions for obtaining and repaying a loan and identifying violations of the conditions for repayment of a loan;
- familiarization with the minutes of meetings of shareholders, meetings of the board of directors and committees in order to identify in them references to financial difficulties;
- interviewing lawyers and other specialists of the audited entity in order to identify information regarding the existence of legal claims and the correctness of management's assessment of the impact of these claims on financial condition the audited entity;
- verification of the availability, legality and ability to ensure the implementation of agreements on the start or continuation of financing from affiliated and third parties, as well as an assessment of the ability of these persons to provide additional funds;
- study of the plans of the audited entity regarding the outstanding orders of its clients;
- study of conditional facts of economic activity;
- Analysis of events after the reporting date to determine whether such events have an impact on the ability of the audited entity to continue as a going concern.
22. In the case when the analysis of the movement of financial flows is a significant factor affecting the going concern of the audited entity, the auditor should analyze:
- reliability information systems the audited entity providing information on the movement of financial flows;
- the validity of the assumptions on which the audited entity's forecasts are based.
In addition, the auditor compares:
- forecast data for previous periods with actual results;
- forecast data for the current period with the results achieved at the date of the audit.
Auditor's conclusions and auditor's report
23. Failure in the auditor's report to indicate a serious doubt about the applicability going concern assumptions cannot and should not be interpreted by the audited entity and interested users as a guarantee of the auditor that the audited entity will continue its activity and fulfill their obligations for at least 12 months following the reporting one.
24. Based on the audit evidence obtained, the auditor shall determine whether, in accordance with his professional judgment, a material uncertainty exists related to conditions and events that, individually or in the aggregate, give rise to significant doubt about the auditee's ability to continue as a going concern.
25. If the going concern assumption can be considered as being met, but nevertheless there is a significant uncertainty, the auditor determines:
whether the financial (accounting) statements adequately describe the factors that give rise to significant doubts about the ability of the audited entity to continue its activities, and the plans of its management associated with such factors;
whether the financial (accounting) statements indicate the fact that there is a material uncertainty associated with conditions or events that give rise to significant doubts about the ability of the audited entity to continue as a going concern, and that in this regard, the audited entity may not be able to realize its assets and fulfill its obligations in the normal course of its business.
26. If information is adequately disclosed in the financial (accounting) statements, the auditor should express an unconditionally positive opinion, but modify the auditor's report to include a paragraph that draws attention to the situation, which notes the presence of material uncertainty related to conditions or events that give rise to significant doubts. the ability of the auditee to continue as a going concern and reference is made to the relevant clause explanatory note to financial (accounting) statements.
27. If the financial (accounting) statements do not adequately disclose information, the auditor should express a qualified opinion or a negative opinion (depending on the specific circumstances). The auditor's report should make specific reference to the existence of a material uncertainty that casts significant doubt on the ability of the audited entity to continue as a going concern.
28. If, in accordance with the professional judgment of the auditor, the audited entity is unable to continue as a going concern, the auditor should express a negative opinion, provided that financial (accounting) statements are prepared on the basis of the going concern basis. If, on the basis of the additional procedures performed, the information obtained and taking into account the plans of management, the auditor believes that the audited entity will not be able to continue as a going concern, then (regardless of whether information about this has been disclosed) the auditor concludes that the preparation of financial (accounting) statements, the going concern assumption cannot be considered as being observed, and expresses a negative opinion.
29. If the management of the audited entity has come to the conclusion that the going concern assumption used in the preparation of the financial (accounting) statements cannot be considered obeyed, the financial (accounting) statements must be prepared in accordance with the procedure stipulated by the legislation of the Russian Federation for such a situation. ... If, on the basis of the additional procedures performed and the information obtained, the auditor concludes that such a procedure has been observed, the auditor may express an unconditionally positive opinion, provided that the information is adequately disclosed, but at the same time, he may consider it necessary to include a part that draws attention to the situation in the auditor's report in order to to draw the user's attention to a special procedure for preparing financial (accounting) statements.
30. If the audited entity's management refuses, at the request of the auditor, to assess the auditee's ability to continue as a going concern or to extend the period covered by such an assessment, the auditor should consider the need to modify the auditor's report due to the limited scope of the auditor's work, since it may not be possible for the auditor to obtain sufficient appropriate audit evidence concerning the use of the going concern assumption of the audited entity in the preparation of financial (accounting) statements. Insufficient analytical work on the part of the management of the audited entity, as a rule, cannot prevent the auditor from ascertaining the ability of the audited entity to continue as a going concern if the audited entity has a long-term experience of profitable activities and easy access to financial resources.
Signing or approvingfinancial (accounting) statementswell after the reporting date
31. If the management of the audited entity signs or approves financial (accounting) statements much later than the reporting date, the auditor should analyze the reasons for such a delay. In the event that the delay could be associated with events or conditions relating to continuity assumptions and, the auditor considers the need for additional audit procedures specified in paragraph 19 of this rules (standard) of auditing activities.
FEDERAL REGULATIONS
(STANDARDS) AUDITING ACTIVITIES
RULE (STANDARD) N 11.
APPLICABILITY OF THE CONTINUITY ASSUMPTION
ACTIVITIES OF THE AUDITED PERSON
Introduction
1. This federal rule (standard) of auditing, developed taking into account international auditing standards, establishes uniform requirements for the auditor's actions to verify the legality of the audited entity's use of the assumption of going concern in the preparation of financial (accounting) statements, including when considering the submitted the management of the audited entity evaluates the ability of the entity to continue as a going concern.
2. The going concern assumption is the basic principle of preparation of financial (accounting) statements. In accordance with the going concern basis, it is usually assumed that the audited entity will continue to carry out its financial and economic activities for 12 months of the year following the reporting year, and has no intention or need to liquidate, discontinue financial and economic activities or apply for protection against creditors. Assets and liabilities are accounted for on the basis that the audited entity will be able to fulfill its obligations and realize its assets in the course of its activities.
Factors influencing
for business continuity
3. Since the going concern assumption is one of the basic principles of preparation of financial (accounting) statements, the responsibility of the audited entity's management is to assess the ability of the audited entity to continue as a going concern, even if the procedure for preparing financial (accounting) statements applicable in these conditions does not provide for an explicit requirement to do so.
4. If the audited entity has an experience of profitable operations and free access to financial resources for a long period of time, its management can give its assessment without conducting a detailed analysis.
5. The audited entity's assessment of the assumption of going concern is associated with making at a specific point in time a professional judgment about the facts of economic activity, which are uncertain as of the date of the financial (accounting) statements. In this regard, it should be taken into account that:
as a rule, the level of uncertainty associated with the outcome of an event or condition increases significantly with an increase in the period of time between judgment and the impact of conditional facts;
any influence of a contingent fact in the future is based on the information available at the time of preparation of the financial (accounting) statements, therefore, subsequent events may conflict with professional judgment, which was reasonable at the time of its issuance;
the size and complex structure of the audited entity, the nature and conditions of its activities, as well as the degree of impact on the audited entity of external factors influence professional judgment about the influence of conditional facts.
6. Doubt in the applicability of the going concern assumption may arise for the auditor when reviewing the financial (accounting) statements or when performing other audit procedures. Indicators on the basis of which there may be doubt about the applicability of the going concern assumption are the following:
a) financial signs:
negative net assets or non-compliance with the established requirements in relation to net assets;
borrowed funds, the repayment period of which is approaching, in the absence of a real prospect of repayment or extension of the loan term, or unjustified use of short-term loans to finance long-term assets;
change in the payment scheme for goods (work performed, services rendered) to suppliers on the terms of a commercial loan or payment by installments in comparison with settlements as the goods are delivered (work performed, services rendered);
significant deviation of the values of the main coefficients characterizing the financial position of the audited entity from normal (usual) values;
inability to pay off accounts payable in due time;
failure to provide financing for business development or other important investments;
significant losses from core activities;
difficulties in complying with the terms of the loan agreement;
arrears in payment or termination of payment of dividends;
economically irrational debt obligations;
signs of bankruptcy established by the legislation of the Russian Federation;
b) production characteristics:
dismissal of key management personnel without proper replacement;
loss of sales market, license or main supplier;
labor problems or a shortage of significant capital goods;
significant dependence on the successful implementation of a specific project;
a significant volume of sales of raw materials and materials, comparable to the volume of proceeds from the sale of products (works, services) or exceeding it;
c) other signs:
non-compliance with the requirements for the formation of the authorized capital of the audited entity, established by the legislation of the Russian Federation;
lawsuits against the audited entity, which are in the process of being considered and may, if the plaintiff succeeds, end with a court decision that is not feasible for this person;
changes in legislation or changes in the political situation.
This list of features is not final. In addition, the presence of one or more features is not always sufficient evidence of the inapplicability of the going concern assumption when preparing the financial (accounting) statements of the audited entity.
The value of the listed signs may decrease under the influence of other signs. For example, the inability of the auditee to make payments routinely can be addressed by management actions to ensure sufficient cash flows from other sources, such as assets and liabilities, restructuring payments for loan repayments, or attracting additional investment. Likewise, the loss of a major supplier can be offset by the emergence of an alternative source of supply.
7. When expressing an opinion on the reliability of the financial (accounting) statements of the audited entity, the auditor should consider the entire set of factors that have and (or) are capable of influencing the ability of this entity to continue activities and fulfill its obligations for at least 12 months following the reporting period , and these factors should be disclosed in the financial (accounting) statements. The auditor considers the appropriateness of the management of the audited entity's use of the going concern assumption even if the requirements for the preparation of financial (accounting) statements do not provide for the responsibility of the management of the audited entity to specifically assess the ability of the audited entity to continue as a going concern.
The auditor cannot predict future events or conditions that may cause the entity to terminate as a going concern, so the absence of any reference to going concern uncertainties in the auditor's report cannot be considered a guarantee of the auditee's ability to continue as a going concern.
Auditor planning and verification activities
applying the continuity assumption
activities of the audited entity
8. In planning the audit, the auditor should consider whether there are any events or conditions that give rise to significant doubt about the ability of the auditee to continue as a going concern.
9. During the audit, the auditor should carefully monitor whether there is evidence of the existence of factors that give rise to significant doubts about the ability of the audited entity to continue as a going concern. If such factors are identified, the auditor should consider whether they affect the auditor's assessment of the components of audit risk.
10. The auditor considers going concern considerations when planning the audit, as such consideration allows them to be discussed in a timely manner with the management of the audited entity, as well as during the audit.
11. In some cases, the employees of the audited entity themselves may conduct a preliminary assessment of the applicability of the going concern assumption at the initial stages of the audit. In this case, the auditor checks such an assessment to determine whether the management of the audited entity has identified any factors related to the going concern assumption, and if so, what are the related plans of management.
12. If the audited entity has not yet made a preliminary assessment of the applicability of the going concern assumption, the auditor asks him if there are any financial, operational and other factors specified in paragraph 6 of this rule (standard) of auditing. The auditor may ask the auditee to make such an assessment, especially in cases where the auditor has already identified factors that affect the going concern assumption.
13. The auditor analyzes the consequences of the identified factors when conducting a preliminary assessment of the components of audit risk. The presence of such factors can affect the nature, timing and extent of audit procedures.
14. The auditor should review the assessment given by the management of the audited entity to the ability of the audited entity to continue as a going concern for at least 12 months following the reporting period. The assessment by the management of the audited entity of the ability of the audited entity to carry out its business as a going concern is the main factor in the auditor's analysis of the possibility of going concern.
When analyzing the assessment made by management of the audited entity, the auditor considers the procedure by which management made its assessment, the assumptions on which such assessment was based, and management's plans for future actions. The auditor considers whether all information that becomes known to the auditor as a result of the audit procedures has been taken into account in making the assessment.
15. The auditor should ask the auditee for information about whether he is aware of any events or conditions that are beyond a period of 12 months from the date of the reporting date and that may give rise to significant doubts about the ability of the auditee to continue as a going concern.
16. The auditor should be careful about the likelihood of the existence of known events (planned or otherwise) or conditions that may occur in the future and which may call into question the principle of assumption of a going concern in the preparation of financial (accounting) statements. The auditor may become aware of such factors in planning or performing the audit, including in the course of audit procedures relating to events after the reporting date.
17. Since the degree of uncertainty associated with the consequences of any factors increases with their remoteness in time, the auditor should consider whether additional actions are appropriate only if the signs of problems associated with the assumption of going concern of the audited entity are significant. ... The auditor has the right to require the audited entity to assess the potential significance of contingent factors in terms of their impact on the possibility of going concern.
18. The auditor is not required to develop procedures (other than sending a request to the auditee) to check for signs of factors that give rise to significant doubts about the auditee's ability to continue as a going concern and that go beyond a period of at least 12 months from the date of the reporting date.
Additional audit procedures
in case of identification of factors related to the assumption
the continuity of the audited entity
19. If factors are identified that give rise to significant doubts about the ability of the auditee to continue as a going concern, the auditor should:
check the plans of the auditee for future operations based on its assessment of the going concern assumption;
by performing the necessary audit procedures to collect reliable audit evidence in order to confirm or deny the presence of factors of material uncertainty, including considering the consequences of any plans of the auditee and possible mitigating circumstances;
require managers of the audited entity to provide written information regarding their plans for the future.
20. Factors that give rise to significant doubt about the ability of the auditee to continue as a going concern may be identified in the course of planning the engagement or performing audit procedures. The process of considering such factors continues as the audit progresses. In the event that the auditor believes that such factors give rise to significant doubts about the ability of the audited entity to continue as a going concern, certain procedures take on additional importance. The auditor asks the audited entity for information regarding its future activities, including plans to generate income, borrowed funds and debt restructuring, reduce or postpone expenses or increase the amount of authorized capital. The auditor also considers whether any additional facts or information has emerged since the auditee conducted its own going concern assessment. The auditor should strive to obtain reliable audit evidence that management's plans are feasible and that the situation will improve as a result of their implementation.
21. The number of audit procedures in the case provided for in paragraph 20 of this rule (standard) of auditing include:
analysis and discussion with the management of the audited entity of forecasts regarding the movement of financial flows, income, etc .;
analysis and discussion of the latest available interim financial (accounting) statements of the audited entity;
analysis of the conditions for obtaining and repaying a loan and identifying violations of the conditions for repayment of a loan;
familiarization with the minutes of meetings of shareholders, meetings of the board of directors and committees in order to identify in them references to financial difficulties;
interviewing lawyers and other specialists of the audited entity in order to identify information regarding the existence of legal claims and the correctness of management's assessment of the impact of these claims on the financial condition of the audited entity;
verification of the availability, legality and ability to ensure the implementation of agreements on the start or continuation of financing from affiliated and third parties, as well as an assessment of the ability of these persons to provide additional funds;
study of the plans of the audited entity regarding the outstanding orders of its clients;
study of conditional facts of economic activity;
Analysis of events after the reporting date to determine whether such events have an impact on the ability of the audited entity to continue as a going concern.
22. In the case when the analysis of the movement of financial flows is a significant factor affecting the going concern of the audited entity, the auditor should analyze:
reliability of information systems of the audited entity, providing information on the movement of financial flows;
the validity of the assumptions on which the audited entity's forecasts are based.
In addition, the auditor compares:
forecast data for previous periods with actual results;
forecast data for the current period with the results achieved at the date of the audit.
Auditor's conclusions and auditor's report
23. The absence in the auditor's report of an indication of a serious doubt about the applicability of the going concern assumption cannot and should not be interpreted by the auditee and interested users as a guarantee of the auditor that the audited entity will continue to operate and fulfill its obligations for at least 12 months, following the reporting.
24. Based on the audit evidence obtained, the auditor shall determine whether, in accordance with his professional judgment, a material uncertainty exists related to conditions and events that, individually or in the aggregate, give rise to significant doubt about the auditee's ability to continue as a going concern.
25. If the going concern assumption can be considered as being met, but nevertheless there is a significant uncertainty, the auditor determines:
whether the financial (accounting) statements adequately describe the factors that give rise to significant doubts about the ability of the audited entity to continue its activities, and the plans of its management associated with such factors;
whether the financial (accounting) statements indicate the fact that there is a material uncertainty associated with conditions or events that give rise to significant doubts about the ability of the audited entity to continue as a going concern, and that in this regard, the audited entity may not be able to realize its assets and fulfill its obligations in the normal course of its business.
26. If information is adequately disclosed in the financial (accounting) statements, the auditor should express an unconditionally positive opinion, but modify the auditor's report to include a paragraph that draws attention to the situation, which notes the presence of material uncertainty related to conditions or events that give rise to significant doubts. in the ability of the audited entity to continue its activities continuously, and contains a reference to the corresponding paragraph of the explanatory note to the financial (accounting) statements.
27. If the financial (accounting) statements do not adequately disclose information, the auditor should express a qualified opinion or a negative opinion (depending on the specific circumstances). The auditor's report should make specific reference to the existence of a material uncertainty that casts significant doubt on the ability of the audited entity to continue as a going concern.
28. If, in accordance with the professional judgment of the auditor, the audited entity is unable to continue as a going concern, the auditor should express a negative opinion, provided that financial (accounting) statements are prepared on the basis of the going concern basis. If, on the basis of the additional procedures performed, the information obtained and taking into account the plans of management, the auditor believes that the audited entity will not be able to continue as a going concern, then (regardless of whether information about this has been disclosed) the auditor concludes that the preparation of financial (accounting) statements, the going concern assumption cannot be considered as being observed, and expresses a negative opinion.
29. If the management of the audited entity has come to the conclusion that the going concern assumption used in the preparation of the financial (accounting) statements cannot be considered obeyed, the financial (accounting) statements must be prepared in accordance with the procedure stipulated by the legislation of the Russian Federation for such a situation. ... If, on the basis of the additional procedures performed and the information obtained, the auditor concludes that such a procedure has been observed, the auditor may express an unconditionally positive opinion, provided that the information is adequately disclosed, but at the same time, he may consider it necessary to include a part that draws attention to the situation in the auditor's report in order to to draw the user's attention to a special procedure for preparing financial (accounting) statements.
30. If the audited entity's management refuses, at the request of the auditor, to assess the auditee's ability to continue as a going concern or to extend the period covered by such an assessment, the auditor should consider the need to modify the auditor's report due to the limited scope of the auditor's work, since it may not be possible for the auditor to obtain sufficient appropriate audit evidence concerning the use of the going concern assumption of the audited entity in the preparation of financial (accounting) statements. Insufficient analytical work on the part of the management of the audited entity, as a rule, cannot prevent the auditor from ascertaining the ability of the audited entity to continue as a going concern if the audited entity has a long-term experience of profitable activities and easy access to financial resources.
Signing or approving
financial (accounting) statements
well after the reporting date
31. If the management of the audited entity signs or approves financial (accounting) statements much later than the reporting date, the auditor should analyze the reasons for such a delay. In the event that the delay could be associated with events or conditions related to the assumption of going concern, the auditor considers the need for additional audit procedures specified in paragraph 19 of this rule (standard) of auditing.
It is regulated by PSAD No. 11 “Applicability of the business continuity assumption of the audited entity”. According to this admission the client is generally regarded as continuing to carry out its business for the foreseeable future (at least 12 months after the reporting date) and has no intention or need to liquidate it or seek protection from creditors in accordance with the laws and regulations... Accordingly, assets and liabilities are accounted for on the basis that the audited entity will be able to meet the obligations and realize the assets in the course of its business. Thus, the organization's assessment of the assumption of going concern is associated with making a subjective judgment at a specific point in time about contingent facts of economic activity that are uncertain as of the date of the financial statements.
The audited entity's assessment of its ability to continue as a going concern is a key element in the auditor's analysis of the going concern assumption. In this regard, it is appropriate to pay attention to the following factors:
- 1) in a general sense, the level of uncertainty associated with the outcome of an event or condition increases significantly as the time frame of judgment regarding the impact of conditional facts is “pushed back”. For this reason, in most cases, among the basic principles for the preparation of financial statements, which contain an explicit requirement for the actions of the organization, the period for which management should take into account all available information is indicated;
- 2) any influence of the contingent fact in the future is based on the information available at the time of drawing up the financial statements. Subsequent events may conflict with the subjective judgment that was reasonable at the time it was made;
- 3) the size and complex structure of the subject, the nature and conditions of his activity, as well as the degree to which the subject is exposed to external factors, contribute to the formation of a subjective judgment about the influence of conditional facts.
PSAD # 11 provides examples of contingencies that, individually or in combination, may raise significant concerns about going concern. This list is not exhaustive, therefore, the presence of one or more facts in it does not always allow us to draw a conclusion about significant uncertainty.
In number audit procedures may include:
- 1) analysis and discussion with the management of the audited entity of forecasts regarding the movement of financial flows, income, etc .;
- 2) analysis and discussion of the latest available preliminary financial statements;
- 3) analysis of the conditions for attracting borrowed funds and identification of violations of the terms of repayment of such funds;
- 4) studying the minutes of meetings of shareholders, meetings of the board of directors and committees for any mention of financial difficulties;
- 5) a survey of the audited entity's lawyers regarding the presence of litigation and claims and the correctness of the assessment of their results on the financial condition of the enterprise;
- 6) verification of the availability, legality and ability to ensure the implementation of agreements on the provision or maintenance of financing by related parties and third parties, as well as assessing the ability of such parties to provide additional funds;
- 7) studying the plans of the audited entity regarding the outstanding orders of its clients;
- 8) analysis of events after the reporting date in order to determine what impact (debilitating or otherwise) they have on the ability of the audited entity to continue as a going concern.
Indicators on the basis of which there may be doubt about the applicability of the going concern assumption:
- -financial signs:
- 1) negative value of net assets;
- 2) attraction of loans in the absence of a real prospect of their return;
- 3) changing the payment scheme to suppliers;
- 4) inability to timely pay off accounts payable;
- 5) significant losses from core activities;
- 6) signs of bankruptcy established by the legislation of the Russian Federation;
- -production characteristics:
- 1) dismissal of key management personnel without due replacement;
- 2) loss of a sales market, license, main supplier;
- 3) problems with labor resources, significant means of production;
- 4) significant dependence on the implementation of a specific project;
- 5) a significant volume of sales of raw materials and supplies;
- -other signs:
- 1) failure to comply with legal requirements for the formation of the authorized capital;
- 2) lawsuits against the audited entity, which are in the process of consideration and may result in a decision that is not feasible for this entity; 3) amendments to legislation or changes in the political situation in the country.
The presence of one or more features is not always sufficient evidence that the going concern assumption is not applicable. The auditor should consider a combination of factors related to the ability of the audited entity to continue to carry out activities for 12 months of the year following the reporting period, these facts should be disclosed to the TSF. The auditor cannot predict future events, the absence in the auditor's report of references to the facts of uncertainty related to going concern cannot be considered as a guarantee of the ability of the audited entity to continue as a going concern.
Having identified such factors, the auditor should:
- 1) check the plans of the audited entity in relation to future activities;
- 2) collect reliable evidence in order to confirm or refute the existence of facts of material uncertainty;
- 3) require the audited entity to provide written information on plans for the future.
When such factors are identified, audit procedures include, but are not limited to:
- 1) analysis and discussion of forecasts of the movement of financial flows, income;
- 2) analysis and discussion of the last intermediate TSF;
- 3) familiarization with the minutes of meetings of shareholders, meetings of the board of directors;
- 4) study of conditional facts of economic activity;
- 5) analysis of events after the reporting date.
If contingencies are identified, the auditor should:
- 1) check the organization's plans for future operations based on its assessment of the going concern assumption;
- 2) collect, through the necessary audit procedures, reliable audit evidence to confirm or deny the presence of factors of material uncertainty, including to consider the consequences of any plans of the organization and other factors;
- 3) ask the organization to provide in writing information regarding its plans for future activities.
In addition, the auditor compares the expected financial information: 1) for recent prior periods with actual results; 2) for the current period with valid results achieved up to this point.
On the basis of the audit evidence obtained, the auditor shall determine whether, in accordance with his judgment, a material uncertainty arises from conditions and events that, individually or in the aggregate, give rise to significant doubt about the entity's ability to continue as a going concern.
If there is any doubt about going concern, the auditor's report is modified to include a part that attracts the attention of users. If the TSF does not adequately disclose information, then, depending on the specific circumstances, a qualified or negative opinion is expressed.
The going concern assumption is one of the basic principles of financial reporting. In accordance with this principle, the audited entity will continue to carry out its financial and economic activities for 12 months after the reporting period and has no intention or the need to liquidate, terminate activities or apply for protection from creditors. The assets and liabilities of the audited entity should be accounted for on the basis that it will be able to fulfill its obligations and realize its assets in the course of future activities. The auditee's management should assess their organization's ability to continue as a going concern. If the audited entity has a long history of profitable transactions and easy access to financial resources, management can make an assessment of the going concern assumption without conducting a detailed analysis.
The auditor may have doubts about the applicability of the continuity assumption in the following cases:
1.financial characteristics:
- negative value of net assets;
- borrowed funds, the repayment period of which is approaching in the absence of a real prospect of repayment or extension of the loan term, or the unjustified use of short-term loans to finance long-term assets;
- changing the payment scheme for goods, works, services to suppliers on the terms of a commercial loan or deferred payment;
- significant deviation of the main coefficients characterizing the financial position of the audited entity from normal values;
- inability to pay off accounts payable in due time;
- inability to provide financing for the development of its activities and the implementation of other important investments;
- significant losses from core activities;
- arrears in payment or termination of payment of dividends;
- economic irrational debt obligations;
- signs of bankruptcy established by legislation.
2.production signs:
- dismissal of the main management personnel without their proper replacement;
- loss of sales markets, licenses of the main suppliers;
- a problem with labor resources or a shortage of significant means of production;
- significant dependence on the successful implementation of a specific project;
- a significant volume of sales of raw materials and supplies, comparable to or exceeding the volume of proceeds from the sale of products, works, services.
3.other signs:
- failure to comply with the requirements of the legislation in relation to the formation of the authorized capital;
- lawsuits that are in the process of being considered and which may result in a court decision that is unenforceable for the audited entity.
When planning the audit, the auditor should consider whether there are any events or conditions that give rise to doubts about the going concern of the auditee. During the audit, the auditor should carefully monitor the existence of documents that raise doubts about the going concern.
In case of identifying factors that cast doubt on the going concern, the auditor should:
a) check the plans of the auditee for future activities
b) Gather the necessary audit evidence to confirm or disprove a material uncertainty.
The following audit procedures are applied to confirm the existence of factors that cast doubt on the going concern:
a) analysis and discussion with the management of the audited entity of forecasts regarding the movement of financial flows, income;
b) analysis and discussion of interim financial statements;
c) analysis of the conditions for obtaining and repaying loans, identifying violations of the conditions for repayment of loans;
d) familiarization with the minutes of the meeting of shareholders, meetings of the board of directors in order to identify in them references to financial difficulties;
e) interviewing lawyers and other specialists of the audited entity in order to identify information regarding the existence of legal claims and the correctness of the management's assessment of the impact of these claims on the financial condition;
f) verification of the legality and ability to enforce the financing arrangements by affiliates and third parties, as well as an assessment of the ability of these persons to provide additional funds;
g) studying the plans of the audited entity regarding the outstanding orders of its clients.
If in the auditor's report the auditor did not indicate his doubts about the applicability of the continuity assumption, then this should not be interpreted by the audited entity and interested users as a guarantee of the auditor that the audited entity will continue to operate and fulfill its obligations.
If there is evidence that the continuity principle may not be applicable, the auditor needs to reflect this circumstance in the auditor's report:
a) if the financial statements reliably disclose information, the auditor expresses a positive opinion, but includes an additional paragraph in the auditor's report, which notes the existence of material uncertainty and indicates the reasons for this;
b) if the financial statements do not reliably disclose information, then the auditor expresses an opinion with a qualification or negative, the report also contains a reference to the existence of a material uncertainty.
The considered federal rule (standard) of auditing has been prepared taking into account the international auditing standard ISA 570 “Going concern”. In general, both documents are similar in the main fundamental points, although the structure of the standards and the titles of a number of sections differ in the English and Russian versions.
The federal rule (standard) includes six sections:
- - introduction; international audit standard financial
- - factors affecting the going concern;
- - the auditor's actions to plan and verify the application of the going concern assumption of the audited entity;
- - additional audit procedures in case of identification of factors related to the assumption of the going concern of the audited entity;
- - the auditor's conclusions and the auditor's report;
- - signing or approval of financial (accounting) statements much later than the reporting date.
ISA Going Concern is divided into nine sections:
- - introduction;
- - responsibilities of the management;
- - the responsibilities of the auditor;
- - planning considerations;
- - analysis of the assessment given by the management;
- - the period not covered by the management's assessment;
- - additional audit procedures if relevant events or conditions are identified;
- - audit findings and preparation of a report (conclusions);
- - Signing or approving financial statements with significant delays.
Comparing the Russian federal rule (standard) and ISA, one can notice the presence in the international standard detailed examples How the going concern matters should be formulated in the auditor's report, depending on the specific circumstances and modifying the audit outcome.
The introduction states that the going concern assumption is the main principle for preparing financial (accounting) statements. It is on the ability and intention of the audited entity to continue its business for at least 12 months following the reporting year. After this period of time, the economic entity will again submit financial (accounting) statements, and during the subsequent audit, the validity of further application of the going concern principle will be re-assessed.
This assessment is important for two reasons:
- - if an economic entity faces a threat of liquidation, then financial (accounting) statements cannot be prepared based on the assessment of assets and liabilities used in normal operation, since there are quite obvious differences in the procedure for payments to creditors, as well as in the amount of funds that can be obtained with an urgent sale of assets;
- - secondly, consideration of the applicability of the going concern assumption is of great importance from the point of view of the interests of users of financial (accounting) statements, for whom it is important not only how accurately past events are reflected in the statements, but also whether it is possible to speak about the company's activities in the future.
The section "Factors Affecting Going Concern" characterizes:
- - the responsibilities of the management of the audited entity in relation to assessing the ability of the economic entity to continue as a going concern (paragraphs 3 and 4);
- The responsibilities of the auditors in assessing the applicability of the going concern assumption of the audited entity (paragraphs 5 and 7);
- - the main indicators that may signal that the going concern is questionable (paragraph 6).
Thus, a significant deviation of the main financial ratios from the usual values is an alarming sign if such a deviation is negative.
Another point to dwell on is the following. As a factor that casts doubt on the applicability of going concern, paragraph 6 refers to the fact that the audited entity has a significant volume of sales of raw materials and supplies comparable to or exceeding the volume of proceeds from the sale of products (works, services).
Particular attention should be paid to the extremely important provision in paragraph 7 that “the absence in the auditor's report of any mention of uncertainties related to going concern cannot be considered as a guarantee of the ability of the auditee to continue as a going concern”. The section "Actions of the auditor to plan and verify the application of the going concern assumption of the audited entity" contains practically step by step instructions auditors in relation to:
- - consideration of going concern factors during the planning stage of the audit;
- - analysis of the influence of these factors on the components of audit risk;
- - checking the preliminary assessment of the applicability of the going concern assumption, if such an assessment has already been made by the auditee;
- - sending an appropriate request to the management of the audited entity, if a preliminary assessment regarding the continuation of the activity has not yet been made;
- - analysis of the assessment given by the management of the audited entity in relation to the ability of the economic entity to continue to conduct its business, including taking into account the assumptions used by the management and the audited entity's plans for the future.
The need for auditors to carry out additional procedures to clarify issues related to going concern is due to how serious the indicators of possible trouble are. Section 17 requires auditors to take additional action only if the signs of problems are significant.
Clause 18 is closely related to the question of the scope of work of auditors in assessing the applicability of the going concern assumption. It contains an important provision that, except for a request to the auditee, auditors are not required to develop other procedures to check for signs of factors that give rise to doubts about the auditee's ability. persons to continue their activities without interruption and which go beyond a period of at least 12 months from the date of the reporting date.
The section "Additional audit procedures in case of identification of factors related to the assumption of going concern of the audited entity" prescribes additional audit procedures in cases where the auditors conclude that there are factors that cast significant doubt on the ability of the audited entity to continue to conduct business in the future. In such a situation, as specified in paragraph 19, auditors should require the management of the audited entity to provide them with written information regarding its plans for the future.
In the presence of serious warning indicators, it becomes necessary to apply a special approach to a number of audit procedures. Some of them take on added meaning.
As such procedures, clause 20 calls the audit of the audited entity (through the request form) his plans for obtaining income, borrowed funds and debt restructuring, reducing or postponing expenses or increasing the amount of the authorized capital. The same paragraph notes that “the auditor should strive to obtain reliable audit evidence that the management's plans are feasible and that the situation will improve as a result of their implementation”. It is not for nothing that the above formulation contains the phrase “should strive”. Apparently, this should be understood in such a way that the commented federal rule (standard) contains an understanding of the problematic nature of obtaining comprehensive evidence on the feasibility of the client's anti-crisis plans.
In such circumstances, it is necessary to conduct audit procedures aimed at a closer examination of events and facts, as well as agreements, plans and estimates that are relevant to the prospects for rectifying the situation. Paragraphs 21 and 22 provide a list of specific procedures that can help auditors confirm or dispel doubts about the applicability of the going concern assumption. So, if necessary, auditors can come into contact with the lawyers of the audited entity in order to clarify information on legal claims against the audited economic entity. Other officials may provide clarifications on the backlog of an entity's customers.
If the audited entity intends to benefit from support from affiliated organizations, then it is advisable to consider the seriousness of such intentions, in particular, to find out whether the corresponding agreement is documented.
Among other actions prescribed to auditors in the commented section, it is not out of place to dwell on the procedure for comparing the forecast data for previous periods with the actual results achieved.
Such a procedure should enable auditors to draw certain conclusions about how past forecasts have been justified and, based on this, analyze to what extent the client's projections are credible.
Section "Conclusions of the auditor and the auditor's report"
Clause 23 of section actually duplicates the provision of the second paragraph of clause 7 of the same federal rule (standard), which indicated the impossibility of providing assurances by auditors regarding the ability of the audited entity to continue as a going concern, even if the auditor's report did not mention the factors of uncertainty related to going concern. The presence of a stand-alone clause draws attention to the scope of auditors' responsibility in assessing the applicability of the going concern assumption. In addition, paragraph 23 specifies that auditors do not give guarantees that the audited entity will continue its activities and fulfill its obligations for the next twelve months following the reporting period.
- - by including a paragraph in the unconditionally positive conclusion, which notes the presence of significant uncertainty associated with conditions and events that give rise to significant doubts about the ability of an economic entity to continue its activities continuously. Such an auditor's report is issued if the relevant facts are properly disclosed in the financial (accounting) statements;
- - expressions of opinion with qualification, if uncertainties are not adequately disclosed in the financial (accounting) statements;
- - expressing a negative opinion in the event of a more serious (than in the case of issuing a qualified opinion) non-disclosure of material information in the financial (accounting) statements or if, in accordance with the auditor's professional judgment, the audited entity cannot continue its activities continuously, and its financial (accounting) statements are prepared based on going concern assumption;
- - inclusion in an unconditionally positive conclusion of a part that draws attention to a special procedure for preparing financial (accounting) statements, if such is compiled accurately, but proceeding from the inapplicability of the going concern assumption.
Not included in the federal rule (standard) specific examples language recommended in international standards audit (ISA) for use in auditor's reports in order to reflect certain problematic aspects associated with the principle of going concern, since such examples can be useful in practice.
Thus, in the absence of adequate disclosure in the financial statements, ISA recommends making a specific reference to the existence of material uncertainty (which gives rise to significant doubts about the entity's ability to continue its business as a going concern) and do it as follows.
If a qualified opinion is expressed, the ISA proposes the following wording: “The Company's financing arrangements expired and the outstanding debt was due on March 19, 20XI. The Company was unable to negotiate financing terms or obtain replacement financing. This situation indicates that a material uncertainty exists that casts significant doubt on the Company's ability to continue as a going concern, and, therefore, the Company may not be able to realize its assets and fulfill its obligations in the course of its normal business. This fact is not disclosed in the financial statements (and the notes thereto).
In our opinion, except for the omission of information contained in the previous paragraph, the financial statements provide a fair and fair view (or fairly represent in all material respects) the financial position of the Company as at 31 December 20X0, as well as its results of operations and her cash flow for the year ended on that date ... "
If a negative opinion is expressed, the ISA recommends the following: “The Company’s financing arrangements have expired and the outstanding debt is due on 31 December 20X0. bankruptcy. These events indicate the existence of significant uncertainty, which casts significant doubt on the Company's ability to continue as a going concern, and, therefore, the Company may not be able to realize its assets and fulfill its obligations in the course of its normal business. This fact is not disclosed in the financial statements (and the notes thereto).
In our opinion, due to the omission of information contained in the previous paragraph, the financial statements do not provide a reliable and fair view (or do not represent fairly in all material respects) the financial position of the Company as at 31 December 20X0, as well as the results of its activities and its cash flow for the year ended on that date ... "
These quotes are taken from ISA 570 Going Concern, which is a prototype of the commented federal rule (standard).
However, it should be emphasized once again that the above formulations did not become part of the domestic federal rule (standard) “Applicability of the assumption of the going concern of the audited entity” and therefore cannot be considered as regulatory guidelines. Their purpose is to serve as an additional information resource for Russian specialists. However, when using international experience some formulations need to be adapted taking into account the well-established national traditions and the language prescribed by federal rules (standards).
So, instead of the turnover " Financial statements gives a reliable and fair view (or represents fairly in all material respects) "should be used the standard phrase" In our opinion, the financial (accounting) statements of organization "XXX" reflect fairly in all material respects ... ".
This is fixed in paragraph 15 of the federal rule (standard) of auditing activities " Audit report on financial (accounting) statements ".
Section "signing or approval of financial (accounting) statements much later than the reporting date"
If the management of the audited entity signs or approves its financial (accounting) statements much later than the reporting date, then the auditors are obliged to analyze the reasons for such a delay, as required by paragraph 31 of the commented federal rule (standard).
When this situation is related to the going concern assumption, it becomes necessary to carry out additional audit procedures. It is about requesting the management of the audited entity to provide appropriate written explanations, reviewing the client's plans for the future and collecting audit evidence to confirm or deny the presence of uncertainties related to the going concern of the audited entity.
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