Assumption of continuity of the audited entity. Federal rules (standards) of auditing

RULE (STANDARD) N 11.
APPLICABILITY OF ASSUMPING CONTINUITY
ACTIVITIES OF THE AUDITED PERSON

(introduced by Decree of the Government of the Russian Federation of 04.07.2003 N 405)

Introduction

1. The present federalaudit rule (standard) , developed taking into account international audit standards, establishes uniform requirements for the actions of the auditor to verify the legality of the application by the audited personassumptions about the continuity of its activities   in the preparation of financial (accounting) statements, including when considering the assessment submitted by the management of the audited entity of the ability of the specified entity to continue to continuously carry outactivity.

2. The assumption of business continuity is the basic principle of preparation of financial (accounting) statements. In accordance with the principle of the assumption of business continuity, 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 does not have the intention or need to liquidate, terminate its financial or economic activity or seek protection from creditors. Assets and liabilities are recorded on the basis that the audited entity will be able to fulfill its obligations and realize its assets in the course of its activities.

Influencing Factorsbusiness continuity

3. Since the assumption ofbusiness continuity   is one of the basic principles for preparing financial (accounting) statements, the responsibility of the management of the audited entity is to assess the ability of the audited entity to continue its continuousthe activity , even if the procedure for preparing financial (accounting) statements applicable in these conditions does not provide for an explicit requirement for this.

4. If the audited entity has experience in 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 assessment by the audited entity of the assumption of continuity of activity is associated with the adoption at a particular time of a professional judgment of the facts of economic activity that are uncertain at the date of preparation 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 result of an event or with a condition increases significantly with an increase in the period of time between the judgment and the impact of conditional facts;

Any influence of a conditional fact in the future is based on 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 making;

The size and complex structure of the audited entity, the nature and conditions of its activities, as well as the degree to which external factors are influenced by the audited entity, influence the professional judgment on the impact of conditional facts.

6. The auditor may doubt the applicability of the going concern assumption when considering financial (accounting) statements or when performing other audit procedures. The signs on the basis of which there may be doubt as to the applicability of the going concern assumption are the following:

a) financial characteristics:

• a negative amount of net assets or failure to comply with established requirements for net assets;
• borrowed funds, the repayment period of which is approaching, with a real lack of prospects for repayment or extension of the loan term or unreasonable use of short-term loans to finance long-term assets;
• changing the scheme of payment for goods (work performed, services rendered) to suppliers on the terms of a commercial loan or installment payment in comparison with calculations as the goods are delivered (work performed, services rendered);
• a significant deviation of the values \u200b\u200bof the main coefficients characterizing the financial position of the audited entity from normal (ordinary) values;
• inability to repay accounts payable in due time;
• inability to provide funding for business development or other important investments;
• significant losses from core activities;
• difficulties complying with the terms of the loan agreement;
• arrears of payment or termination of payment of dividends;
• economically unsustainable 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 market, license or primary supplier;
• labor problems 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 materials, comparable to or exceeding the amount of revenue from sales of products (works, services);

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 that are under consideration and may, if the plaintiff is successful, result in a court decision that is not enforceable for that person;
• amending legislation or changing the political situation.

The specified list of signs is not final. In addition, the presence of one or more features is not always sufficient evidence of the inapplicability of the assumption of continuity in the preparation of the financial (accounting) statements of the audited entity.

The value of these signs may decrease under the influence of other signs. For example, the auditee’s inability to make payments in the usual manner can be eliminated by the actions of its management to ensure sufficient cash flows from other sources, for example, from assets and liabilities, restructuring of payments to repay loans or attracting additional investments. Similarly, 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 totality of factors that have and (or) are able to influence the ability of this entity to continue to operate 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 appropriate nature of the use of the going concern assumption by the management of the audited entity even if the requirements for the preparation of the financial (accounting) statements do not provide for the obligation of the management of the audited entity to specifically assess the ability of the audited entity to continue its business continuously.

The auditor cannot predict future events or conditions that may cause the organization to cease its continuous activities, therefore the absence in the audit report of any mention of uncertainties regarding the going concern cannot be considered as a guarantee of the auditee's ability to continue its activities continuously.

Auditor Planning and Verification Actionsapplying the assumption of continuityactivities of the audited entity

8. When planning the audit, the auditor should analyze whether there are any events or conditions that give rise to significant doubts about the ability of the auditee to continue itsactivity continuously.

9. During the audit, the auditor should carefully monitor whether there is evidence of the existence of factors that cause significant doubts about the ability of the audited entity to continue its business continuously. 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 factors related to the assumption of business continuity during the planning of the audit, since such a review 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, employees of the entity being audited may themselves 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 this assessment in order to ascertain whether the management of the audited entity has identified any factors related to the assumption of going concern, and if it has revealed, what are the management plans related to it.

12. If the audited entity has not yet conducted a preliminary assessment of the applicability of the going concern assumption, then the auditor asks him if there are any financial, production and other factors specified in paragraph 6 of this rule (standard) of audit activity. The auditor may ask the auditee to make such an assessment, especially in cases where the auditor has already identified factors that influence the going concern assumption.

13. The auditor analyzes the consequences of the identified factors during the preliminary assessment of the components of audit risk. The presence of such factors may affect the nature, timing and extent of audit procedures.

14. The auditor should analyze the assessment by the management of the audited entity of the ability of the audited entity to continue to operate continuously for at least 12 months following the reporting period. Assessment by the management of the audited entity of the ability of the audited entity to continuously conduct its activities is the main factor in the auditor's analysis of the possibility of assuming continuity of activity.

When analyzing the assessment given by the management of the audited entity, the auditor considers the procedure by which management made its assessment, the assumptions on which the assessment was based, and management's plans for future actions. The auditor considers whether all information that became known to the auditor as a result of the audit procedures was taken into account when making the assessment.

15. The auditor should ask the audited entity for information about whether he is aware of any events or conditions that go beyond the period of 12 months from the reporting date and which may give rise to significant doubts about the ability of the audited entity to continue its business continuously.

16. The auditor should be attentive to the likelihood of known events (planned or otherwise) or conditions that may occur in the future and which could cast doubt on the principle of assuming continuity in the preparation of financial (accounting) statements. The auditor may become aware of such factors during the planning or conduct of the audit, including during the audit procedures related to events that occurred after the reporting date.

17. Since the degree of uncertainty associated with the consequences of any factors increases as they are remoted in time, the auditor should consider the appropriateness of additional actions only if the signs of problems associated with the assumption of the continuity 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 business continuity.

18. The auditor is not obliged to develop procedures (with the exception of sending a request to the audited entity) in order to check for signs of factors that cause significant doubts about the ability of the audited entity to continue its activities and which extend beyond a period of at least 12 months from the reporting date.

Additional audit proceduresin case of identifying factors related to the assumptionbusiness 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 itsthe activity   continuously, the auditor should:

• check the plans of the audited organization for future activities based on its assessment of the assumption of going concern;
• by conducting the necessary audit procedures to collect reliable audit evidence in order to confirm or refute the presence of significant uncertainty factors, including to consider the consequences of any plans of the audited entity and possible mitigating circumstances;
• require managers of the entity to be audited to provide written information regarding their future plans.

20. Factors that give rise to significant doubts about the ability of the audited entity to continue its activities continuously can be identified during the planning of the assignment or the implementation of audit procedures. The process of considering such factors continues as the audit proceeds. In the case when the auditor considers that such factors cause significant doubts about the ability of the audited entity to continue its activity continuously, certain procedures take on additional significance. The auditor requests information from the audited entity regarding its future activities, including plans for generating income, borrowing funds and debt restructuring, reducing or delaying expenses, or increasing the amount of the authorized capital. The auditor also considers whether any additional facts or information have appeared since the audited entity conducted its own assessment of business continuity prospects. The auditor should seek to obtain reliable audit evidence that management plans are feasible and that, as a result of their implementation, the situation will improve.

21. The number of audit procedures in the case provided for in paragraph 20 of this rule (standard) of audit activity includes:

• 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 loan repayment terms;
• familiarization with the minutes of meetings of shareholders, meetings of the board of directors and committees in order to identify references to financial difficulties in them;
• a survey of lawyers and other specialists of the audited entity in order to identify information regarding the existence of lawsuits and the correctness of management's assessment of the impact of these claims on the financial condition of the audited entity;
• checking the availability, legality and possibility of ensuring the implementation of agreements on the beginning or continuing financing by affiliates and third parties, as well as assessing the ability of these persons to provide additional funds;
• study of the plans of the audited entity regarding outstanding orders of its clients;
• the study of conditional facts of economic activity;
• analysis of events after the reporting date in order to determine whether such events affect the ability of the audited entity to continue its continuous activities.

22. In the case when the analysis of the movement of financial flows is a significant factor affecting the continuity 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 findings and audit opinion

23. The absence in the audit report of a serious doubt of applicabilitybusiness continuity 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 itsthe activity   and fulfill their obligations for at least 12 months following the reporting period.

24. Based on the audit evidence obtained, the auditor should determine whether, in accordance with his professional judgment, there is significant uncertainty associated with the conditions and events that individually or in the aggregate cause significant doubts about the ability of the audited entity to continue its business continuously.

25. If the assumption of business continuity can be considered complied with, but nevertheless there is significant uncertainty, the auditor determines:

whether the factors that cause significant doubts about the ability of the audited entity to continue its activities and its management plans related to such factors are adequately described in the financial (accounting) statements;

whether the financial (accounting) statements indicate that there is significant uncertainty associated with conditions or events that give rise to significant doubts about the ability of the audited entity to continue its business continuously, and that in this regard, the audited entity may not be able to realize their assets and fulfill their obligations in the normal course of their activities.

26. If information is adequately disclosed in the financial (accounting) statements, the auditor must express an unconditionally positive opinion, but modify the auditor's report to include a paragraph that draws attention to the situation, in which there is a significant uncertainty associated with conditions or events that cause significant doubt the ability of the audited entity to continue its activities continuously, and contains a link to the corresponding paragraph of the explanatory note to the financial (accounting) statements.

27. If the financial (accounting) statements are not adequately disclosed, the auditor must express an opinion with a reservation or a negative opinion (depending on specific circumstances). The audit report should make specific reference to the existence of significant uncertainty, which raises significant doubts about the ability of the audited entity to continue its business continuously.

28. If, in accordance with the professional judgment of the auditor, the auditee cannot continuously continue its activities, the auditor should express a negative opinion on the condition that financial (accounting) statements are prepared on the basis of the principle of the assumption of business continuity. If, on the basis of the additional procedures performed, the information received, and taking into account management plans, the auditor believes that the audited entity will not be able to continue its activities, then (regardless of whether information about this was disclosed), the auditor concludes that the preparation of financial (accounting) statements, the going concern assumption cannot be considered complied with, and expresses a negative opinion.

29. If the management of the audited entity has come to the conclusion that the assumption of continuity of activity of the organization used in preparing the financial (accounting) statements cannot be considered complied with, the financial (accounting) statements must be prepared in accordance with the procedure provided for by the legislation of the Russian Federation for such a situation . If, on the basis of the additional procedures performed and the information received, the auditor concludes that such an order is being followed, the auditor may express an unconditionally positive opinion provided that the information is adequately disclosed, but may consider it necessary to include in the audit report a part that draws attention to the situation, so to draw the user's attention to the special procedure for preparing financial (accounting) statements.

30. If the management of the audited entity refuses, at the request of the auditor, to assess the ability of the audited entity to continue to operate continuously or to extend the period covered by such an assessment, the auditor should consider the need to modify the audit opinion because of the limited workload of the auditor, since it may not be possible for the auditor to obtain sufficient appropriate audit evidence regarding the use of the going concern basis for the preparation of financial (accounting) statements. Insufficient analytical work by the management of the audited entity, as a rule, cannot prevent the auditor from ascertaining the ability of the audited entity to continue to carry out its activities continuously if the audited entity has long-term experience in profitable activities and unhindered access to financial resources.

Signature or Approvalfinancial (accounting) statementssignificantly later than the reporting date

31. In the case of signing or approval by the management of the audited entity of the 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 related to events or conditions relating tobusiness continuity assumptions and, the auditor considers the need for additional audit procedures referred to in paragraph 19 of thisrules (standards) of audit activity.

FEDERAL RULES

(STANDARDS) OF AUDITING

RULE (STANDARD) N 11.

APPLICABILITY OF ASSUMPING CONTINUITY

ACTIVITIES OF THE AUDITED PERSON

Introduction

1. This federal rule (standard) of audit activity, developed taking into account international audit standards, establishes uniform requirements for the actions of the auditor to verify the legitimacy of the audited entity's assumption of the continuity of its activities in the preparation of financial (accounting) statements, including when considering the submitted the management of the audited entity assesses the ability of the specified entity to continue to continuously carry out its activities.

2. The assumption of business continuity is the basic principle of preparation of financial (accounting) statements. In accordance with the principle of the assumption of business continuity, 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 does not have the intention or need to liquidate, terminate its financial or economic activity or seek protection from creditors. Assets and liabilities are recorded on the basis that the audited entity will be able to fulfill its obligations and realize its assets in the course of its activities.

Influencing Factors

business continuity

3. Since the going concern assumption is one of the basic principles for preparing 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 activities, even if the procedure for preparing financial (accounting) statements applicable in these conditions It does not explicitly require this.

4. If the audited entity has experience in 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 assessment by the audited entity of the assumption of continuity of activity is associated with the adoption at a particular time of a professional judgment of the facts of economic activity that are uncertain at the date of preparation 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 result of an event or with a condition increases significantly with an increase in the period of time between a judgment and the impact of conditional facts;

any influence of a conditional fact in the future is based on 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 making;

the size and complex structure of the audited entity, the nature and conditions of its activities, as well as the degree to which external factors are influenced by the audited entity, influence the professional judgment on the impact of conditional facts.

6. The auditor may doubt the applicability of the going concern assumption when considering financial (accounting) statements or when performing other audit procedures. The signs on the basis of which there may be doubt as to the applicability of the going concern assumption are the following:

a) financial characteristics:

a negative amount of net assets or failure to comply with established requirements for net assets;

borrowed funds, the repayment period of which is approaching, with a real lack of prospects for repayment or extension of the loan term or unreasonable use of short-term loans to finance long-term assets;

changing the scheme of payment for goods (work performed, services rendered) to suppliers on the terms of a commercial loan or installment payment in comparison with calculations as the goods are delivered (work performed, services rendered);

a significant deviation of the values \u200b\u200bof the main coefficients characterizing the financial position of the audited entity from normal (ordinary) values;

inability to repay accounts payable in due time;

inability to provide funding for business development or other important investments;

significant losses from core activities;

difficulties complying with the terms of the loan agreement;

arrears of payment or termination of payment of dividends;

economically unsustainable 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 market, license or primary supplier;

labor problems 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 materials, comparable to or exceeding the amount of revenue from sales of products (works, services);

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 that are under consideration and may, if the plaintiff is successful, result in a court decision that is not enforceable for that person;

amending legislation or changing the political situation.

The specified list of signs is not final. In addition, the presence of one or more features is not always sufficient evidence of the inapplicability of the assumption of continuity in the preparation of the financial (accounting) statements of the audited entity.

The value of these signs may decrease under the influence of other signs. For example, the auditee’s inability to make payments in the usual manner can be eliminated by the actions of its management to ensure sufficient cash flows from other sources, for example, from assets and liabilities, restructuring payments to repay loans or attract additional investments. Similarly, 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 whole set of factors that have and (or) are able to influence the ability of this entity to continue to operate 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 appropriate nature of the use of the going concern assumption by the management of the audited entity even if the requirements for the preparation of financial (accounting) statements do not provide for the obligation of the management of the audited entity to specifically assess the ability of the audited entity to continue its business continuously.

The auditor cannot predict future events or conditions that may cause the organization to cease its continuous activities, therefore the absence in the audit report of any mention of uncertainties regarding the going concern cannot be considered as a guarantee of the auditee's ability to continue its activities continuously.

Auditor Planning and Verification Actions

applying the assumption of continuity

activities of the audited entity

8. When planning the audit, the auditor should analyze whether there are any events or conditions that cause significant doubts about the ability of the audited entity to continue its activities continuously.

9. During the audit, the auditor should carefully monitor whether there is evidence of the existence of factors that cause significant doubts about the ability of the audited entity to continue its business continuously. 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 factors related to the assumption of business continuity during the planning of the audit, since such a review 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, employees of the entity being audited may themselves 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 this assessment in order to ascertain whether the management of the audited entity has identified any factors related to the assumption of going concern, and if it has revealed, what are the management plans related to it.

12. If the audited entity has not yet carried out 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) of audit activity. The auditor may ask the auditee to make such an assessment, especially in cases where the auditor has already identified factors that influence the going concern assumption.

13. The auditor analyzes the consequences of the identified factors during the preliminary assessment of the components of audit risk. The presence of such factors may affect the nature, timing and extent of audit procedures.

14. The auditor should analyze the assessment by the management of the audited entity of the ability of the audited entity to continue to operate continuously for at least 12 months following the reporting period. Assessment by the management of the audited entity of the ability of the audited entity to continuously conduct its activities is the main factor in the auditor's analysis of the possibility of assuming continuity of activity.

When analyzing the assessment given by the management of the audited entity, the auditor considers the procedure by which management made its assessment, the assumptions on which the assessment was based, and management plans for future actions. The auditor considers whether all information that became known to the auditor as a result of the audit procedures was taken into account when making the assessment.

15. The auditor should ask the audited entity for information about whether he is aware of any events or conditions that go beyond the period of 12 months from the reporting date and which may give rise to significant doubts about the ability of the audited entity to continue its activities continuously.

16. The auditor should be attentive to the likelihood of known events (planned or otherwise) or conditions that may occur in the future and which may cast doubt on the principle of assuming continuity in the preparation of financial (accounting) statements. The auditor may become aware of such factors during the planning or conduct of the audit, including during the audit procedures related to events that occurred after the reporting date.

17. Since the degree of uncertainty associated with the consequences of any factors increases as they are remoter in time, the auditor should consider the appropriateness of additional actions only if the signs of problems associated with assuming a 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 business continuity.

18. The auditor is not obliged to develop procedures (with the exception of sending a request to the audited entity) in order to check for signs of factors that cause significant doubts about the ability of the audited entity to continue its activities and which extend beyond a period of at least 12 months from the reporting date.

Additional audit procedures

in case of identifying factors related to the assumption

business continuity of the audited entity

19. In case of identifying factors that cause significant doubts about the ability of the audited entity to continue its activities continuously, the auditor should:

check the plans of the audited organization for future activities based on its assessment of the assumption of going concern;

by conducting the necessary audit procedures to collect reliable audit evidence in order to confirm or refute the presence of significant uncertainty factors, including to consider the consequences of any plans of the audited entity and possible mitigating circumstances;

require managers of the entity to be audited to provide written information regarding their future plans.

20. Factors that give rise to significant doubts about the ability of the audited entity to continue its activities continuously can be identified during the planning of the assignment or the implementation of audit procedures. The process of considering such factors continues as the audit proceeds. In the case when the auditor considers that such factors cause significant doubts about the ability of the audited entity to continue its activity continuously, certain procedures take on additional significance. The auditor requests information from the audited entity regarding its future activities, including plans for generating income, borrowing funds and debt restructuring, reducing or delaying expenses, or increasing the amount of the authorized capital. The auditor also considers whether any additional facts or information have appeared since the audited entity conducted its own assessment of business continuity prospects. The auditor should seek to obtain reliable audit evidence that management plans are feasible and that, as a result of their implementation, the situation will improve.

21. The number of audit procedures in the case provided for in paragraph 20 of this rule (standard) of audit activity includes:

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 loan repayment terms;

familiarization with the minutes of meetings of shareholders, meetings of the board of directors and committees in order to identify references to financial difficulties in them;

a survey of lawyers and other specialists of the audited entity in order to identify information regarding the existence of lawsuits and the correctness of management's assessment of the impact of these claims on the financial condition of the audited entity;

checking the availability, legality and possibility of ensuring the implementation of agreements on the beginning or continuing financing by affiliates and third parties, as well as assessing the ability of these persons to provide additional funds;

study of the plans of the audited entity regarding outstanding orders of its clients;

the study of conditional facts of economic activity;

analysis of events after the reporting date in order to determine whether such events affect the ability of the audited entity to continue its continuous activities.

22. In the case when the analysis of the movement of financial flows is a significant factor affecting the continuity 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 findings and audit opinion

23. The absence in the audit report of a serious doubt about the applicability of the assumption of business continuity 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 activities and fulfill its obligations for at least 12 months, following the reporting.

24. Based on the audit evidence obtained, the auditor should determine whether, in accordance with his professional judgment, there is significant uncertainty associated with the conditions and events that individually or in the aggregate cause significant doubts about the ability of the audited entity to continue its business continuously.

25. If the assumption of business continuity can be considered complied with, but nevertheless there is significant uncertainty, the auditor determines:

whether adequately described in the financial (accounting) statements factors that cause significant doubts about the ability of the audited entity to continue its activities, and its management plans related to such factors;

whether the financial (accounting) statements indicate that there is significant uncertainty associated with conditions or events that give rise to significant doubts about the ability of the audited entity to continue its business continuously, and that in this regard, the audited entity may not be able to realize their assets and fulfill their obligations in the normal course of their activities.

26. If information is adequately disclosed in the financial (accounting) statements, the auditor should express an unconditionally positive opinion, but modify the audit report to include a paragraph that draws attention to the situation, which notes the existence of significant uncertainty related to conditions or events that cause significant doubt the ability of the audited entity to continue its activity continuously, and contains a link to the corresponding paragraph of the explanatory note to the financial (accounting Coy) reporting.

27. If the financial (accounting) statements are not adequately disclosed, the auditor should express an opinion with a reservation or a negative opinion (depending on specific circumstances). The audit report should make a specific reference to the existence of significant uncertainty, which raises significant doubts about the ability of the audited entity to continue its activities continuously.

28. If, in accordance with the professional judgment of the auditor, the auditee cannot continuously continue its activities, the auditor should express a negative opinion on the condition that financial (accounting) statements are prepared on the basis of the principle of the assumption of business continuity. If, on the basis of the additional procedures performed, the information received, and taking into account management plans, the auditor believes that the audited entity will not be able to continue its activities, then (regardless of whether information about this was disclosed), the auditor concludes that the preparation of financial (accounting) statements, the going concern assumption cannot be considered complied with, and expresses a negative opinion.

29. If the management of the audited entity has come to the conclusion that the assumption of continuity of activity of the organization used in preparing the financial (accounting) statements cannot be considered complied with, the financial (accounting) statements must be prepared in accordance with the procedure provided for by the legislation of the Russian Federation for such a situation . If, on the basis of the additional procedures performed and the information received, the auditor concludes that such an order is being followed, the auditor may express an unconditionally positive opinion provided that the information is adequately disclosed, but may consider it necessary to include in the audit report a part that draws attention to the situation, so to draw the user's attention to the special procedure for preparing financial (accounting) statements.

30. If the management of the audited entity refuses, at the request of the auditor, to assess the ability of the audited entity to continue to operate continuously or to extend the period covered by such an assessment, the auditor should consider the need to modify the audit opinion because of the limited workload of the auditor, since it may not be possible for the auditor to obtain sufficient appropriate audit evidence regarding the use of the going concern basis for the audited entity, when prepared vka 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 to carry out its activities continuously if the audited entity has long-term experience in profitable activities and unhindered access to financial resources.

Signature or Approval

financial (accounting) statements

significantly later than the reporting date

31. In the case of signing or approval by the management of the audited entity of the financial (accounting) statements much later than the reporting date, the auditor should analyze the reasons for such a delay. If the delay could be due to events or conditions related to the assumption of continuity of activity, the auditor considers the need for additional audit procedures specified in paragraph 19 of this rule (standard) of audit activity.

PSAD No. 11 “Applicability of the assumption of continuity of activity of the audited entity” is regulated. In accordance with this assumption the client is usually seen as continuing to carry out its financial and economic activities in the foreseeable future (at least 12 months after the reporting date) and not having the intention or need for its liquidation or seeking protection from creditors in accordance with laws and regulations. Accordingly, assets and liabilities are accounted for on the basis that the audited entity will be able to fulfill obligations and realize assets in the course of its activities. Thus, the organization’s assessment of the assumption of the continuity of its activity is associated with making a subjective judgment at a particular point in time about conditional facts of economic activity that are uncertain at the date of the financial statements.

Assessment by the audited entity of its ability to continuously conduct its activities 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 the general sense, the level of uncertainty associated with the result 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 of preparing financial statements, which contain an explicit requirement regarding the organization’s actions, the period is indicated for which management should take into account all available information;
• 2) any influence of a conditional fact in the future is based on information available at the time of preparation of the financial statements. Subsequent events may conflict with a subjective judgment, which 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 on the influence of conditional facts.

PSAD No. 11 provides examples of contingent facts that, individually or in combination, may give rise to significant doubts about the going concern. This list is not exhaustive, therefore, the presence of one or more facts in it does not always allow us to conclude that there is 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 the identification of violations of the terms of repayment of such funds;
• 4) study of the minutes of meetings of shareholders, meetings of the board of directors and committees with a view to mentioning financial difficulties in them;
• 5) a survey of lawyers of the audited entity regarding the availability of litigation and claims and the correctness of the assessment of their results on the financial condition of the enterprise;
• 6) checking the availability, lawfulness and possibility of ensuring the implementation of agreements on the provision or preservation of financing by related parties and third parties, as well as assessing the ability of such parties to provide additional funds;
• 7) the study of the plans of the audited entity relating to outstanding orders of its customers;
• 8) analysis of events after the reporting date in order to determine what impact (weakening or otherwise) they have on the ability of the audited entity to continue its continuous activities.

Signs on the basis of which doubt may arise regarding the applicability of the going concern assumption:

• -   financial signs:
  • 1) negative value of net assets;
  • 2) attracting loans in the absence of a real prospect of their return;
  • 3) a change in the payment scheme to suppliers;
  • 4) inability to repay accounts payable in a timely manner;
  • 5) significant losses from core activities;
  • 6) signs of bankruptcy established by the legislation of the Russian Federation;
• -   manufacturing attributes:
  • 1) the dismissal of key management personnel without proper replacement;
  • 2) loss of 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;
• -   other signs:
  • 1) non-compliance with legal requirements for the formation of the authorized capital;
  • 2) lawsuits against the audited entity that are under consideration and may result in a decision that is not feasible for that person; 3) amending legislation or changing the political situation in the country.

The presence of one or more features is not always sufficient evidence of the inapplicability of the assumption of a going concern. The auditor should consider a set of factors relating 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 in the TSF. The auditor cannot predict future events, the absence in the audit report of references to the facts of uncertainty regarding the continuity of activity cannot be considered as a guarantee of the ability of the audited entity to continue to operate continuously.

Having identified such factors, the auditor should:

• 1) check the plans of the audited entity in relation to future activities;
• 2) to collect reliable evidence in order to confirm or refute the existence of facts of material uncertainty;
• 3) require written information on future plans from the audited entity.

In the case of the identification of such factors, the audit procedures include, in particular:

• 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) the study of conditional facts of economic activity;
• 5) analysis of events after the reporting date.

If conditional facts are identified, the auditor should:

• 1) verify the organization's plans for future activities based on its assessment of the going concern assumption;
• 2) to collect, by conducting the necessary audit procedures, reliable audit evidence to confirm or refute the existence of significant uncertainty factors, including to consider the consequences of any organization plans and other factors;
• 3) ask the organization in writing to provide information regarding its plans for future activities.

In addition, the auditor compares the expected financial information: 1) for recent previous periods with actual results; 2) for the current period with actual results achieved so far.

Based on the audit evidence obtained, the auditor should determine whether, in accordance with his subjective judgment, there is significant uncertainty associated with the conditions and events that individually or in the aggregate cause significant doubts about the subject's ability to continue its continuous activities.

If there is any doubt about the going concern, the audit report is modified by including a part that attracts the attention of users. If the TSF does not adequately disclose information, then, depending on the specific circumstances, an opinion is expressed with a reservation or a negative opinion.

The going concern assumption is one of the basic principles for preparing financial statements. 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 does not have the intention or need for liquidation, termination of business or seeking protection from creditors. 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 management of the entity being audited must evaluate its organization's ability to continue as a going concern. If the person being audited has a long history of profitable operations and free access to financial resources, management can assess the assumption of continuity without conducting a detailed analysis.

The auditor may doubt the applicability of the assumption of continuity in the following cases:

1. financial characteristics:

- negative value of net assets;

- borrowed funds, the repayment period of which is approaching with a real lack of prospects for repayment or extension of the loan term or unreasonable use of short-term loans to finance long-term assets;

- changing the payment scheme for goods, work, services to suppliers on the terms of a commercial loan or deferred payment;

- a significant deviation of the main ratios characterizing the financial position of the audited entity from normal values;

- Inability to repay 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 of payment or termination of dividend payments;

- economic irrational debt obligations;

- signs of bankruptcy established by law.

2. production features:

- dismissal of the main management personnel without proper replacement;

- loss of sales markets, licenses of major 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 materials, comparable or exceeding the revenue from sales of products, works, services.

3. other signs:

- non-compliance with legal requirements in relation to the formation of the authorized capital;

- lawsuits that are under consideration and which may result in a court decision impossible for the audited entity.

When planning the audit, the auditor should analyze whether there are any events or conditions that give rise to doubts about the continuity of the audited entity. During the audit, the auditor should carefully monitor the availability of documents that give rise to doubts about the going concern.

If factors are identified that cast doubt on the continuity of activities, the auditor should:

a) check the plans of the audited organization for future activities

b) collect the necessary audit evidence in order to confirm or refute material uncertainty.

The following audit procedures are used to confirm the presence 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 repaying loans;

d) familiarization with the minutes of the meeting of shareholders, meetings of the board of directors in order to identify references to financial difficulties in them;

e) a survey of lawyers and other specialists of the audited entity in order to identify information regarding the existence of lawsuits and the correctness of management's assessment of the impact of these claims on the financial condition;

f) checking the availability of legality and the possibility of ensuring the implementation of financing agreements by affiliates and third parties, as well as assessing the ability of these persons to provide additional funds;

g) study of the plans of the audited entity regarding outstanding orders of its clients.

If in the audit report the auditor does not indicate his doubts about the applicability of the assumption of continuity, 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 its activities and fulfill its obligations.

If there is evidence of the inapplicability of the principle of continuity, the auditor needs to reflect this circumstance in the audit report:

a) if the financial statements reliably disclose information, the auditor expresses a positive opinion, but includes an additional paragraph in the audit report, which notes the existence of significant uncertainty and indicates the reasons for this;

b) if the financial statements do not reliably disclose information, the auditor expresses an opinion with a reservation or negative, the conclusion also indicates a reference to the presence of material uncertainty.

The considered federal rule (standard) of audit activity was prepared taking into account the international audit standard ISA 570 “Continuity of activity”. In general, both documents are close in their main points of principle, although the structure of standards and the names of a number of sections differ in English and Russian versions.

The federal rule (standard) includes six sections:

• - introduction; international audit financial standard
• - factors influencing business continuity;
• - actions of the auditor to plan and verify the application of the going concern assumption of the audited entity;
• - additional audit procedures in case of identifying factors related to the assumption of continuity of the audited entity;
• - the findings of the auditor and the audit report;
• - signing or approval of financial (accounting) statements much later than the reporting date.

ISA “Going Concern” consists of nine sections:

• - introduction;
• - management responsibilities;
• - responsibilities of the auditor;
• - considerations regarding planning;
• - analysis of the assessment given by management;
• - period not covered by management's assessment;
• - additional audit procedures in case of revealing relevant events or conditions;
• - audit findings and preparation of the report (conclusion);
• - Signing or approval of financial statements with a significant delay.

Comparing the Russian federal rule (standard) and ISA, one can notice the presence in the international standard of detailed examples of how questions related to business continuity should be formulated in the audit report, depending on specific circumstances and the procedure for modifying the final audit document.

The introduction states that the assumption of business continuity is the basic principle for preparing financial (accounting) statements. We are talking about the possibility 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 at the next audit, the validity of the further application of the principle of business continuity will be re-evaluated.

This assessment is important for two reasons:

• - if the economic entity faces the threat of liquidation, then the financial (accounting) statements cannot be prepared based on the assessment of assets and liabilities used in the conditions of normal functioning, since there are quite obvious differences in the order of payments to creditors, as well as in the amount of cash that can be obtained by 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 which it is not only important how accurately past events are reflected in the statements, but whether it is possible to talk about the company's activities for the future.

The section “Factors Affecting Business Continuity” describes:

• - obligations of the management of the audited entity in relation to assessing the ability of the economic entity to continue its activities continuously (paragraphs 3 and 4);
• - obligations of auditors with respect to assessing the applicability of the going concern assumption of the audited entity's activities (paragraphs 5 and 7);
• - the main signs that may signal that continuity of activity is doubtful (paragraph 6).

Thus, a significant deviation of the main financial ratios from ordinary values \u200b\u200bserves as an alarming sign in the event that such a deviation is negative.

Another point to be considered is as follows. As a factor that raises doubts about the applicability of business continuity, paragraph 6 refers to the implementation by the audited entity of a significant amount of sales of raw materials and materials, comparable to or exceeding the revenue from sales of products (works, services).

Particular attention should be paid to the extremely important provision in paragraph 7 that “the absence in the audit report of any references to uncertainties related to business continuity cannot be considered as a guarantee of the ability of the audited entity to continue to operate continuously”. The section “Actions of the auditor on planning and verifying the application of the assumption of continuity of activity of the audited entity” contains practically step-by-step instructions to auditors regarding:

• - consideration of factors related to business continuity at the audit planning stage;
• - analysis of the impact of these factors on the components of audit risk;
• - verification of a preliminary assessment of the applicability of the going concern assumption, if such an assessment has already been made by the audited entity;
• - sending a corresponding request to the management of the audited entity, if they have not yet made a preliminary assessment regarding the continuation of activities;
• - analysis of the assessment given by the management of the audited entity regarding the ability of the economic entity to continue to conduct its business, including taking into account the assumptions used by the management and the plans for the future for the audited entity.

The need for the auditors to conduct additional procedures to clarify issues related to business continuity is determined by how serious the indicators of possible ill-being are. Section 17 requires additional actions by auditors 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, with the exception of a request to the auditee, auditors are not required to develop other procedures to check for signs of factors that cast doubt on the auditee’s ability persons to continue their activities continuously and who go beyond the period of at least 12 months from the date of the reporting date.

The section “Additional audit procedures in case of identifying factors related to the assumption of continuity of the audited entity” prescribes additional audit procedures when auditors come to the conclusion that there are factors that cast doubt on the audited entity’s ability to continue to conduct business. In such a situation, as indicated in paragraph 19, auditors should require the management of the auditee to provide them with written information regarding his plans for the future.

If there are serious alarming indicators, it becomes necessary to apply a special approach to a number of audit procedures. Some of them take on additional significance.

Paragraph 20 refers to such procedures as asking the audited entity (through the request form) its plans for generating income, borrowing funds and restructuring the debt, reducing or delaying expenses, or increasing the size of the authorized capital. The same paragraph states that “the auditor should strive to obtain reliable audit evidence that management plans are feasible and that the situation will improve as a result of their implementation.” No wonder the given wording contains the phrase “must strive”. Apparently, this should be understood in such a way that in the commented federal rule (standard) there is an understanding of the difficulty 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 related to the prospects for rectifying the situation. Paragraphs 21 and 22 list 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 to clarify information on legal claims against the audited economic entity. Other officials may provide clarification regarding outstanding orders from clients of an economic entity.

If the audited entity intends to take advantage of the support of organizations affiliated with it, then it is advisable to consider the seriousness of such intentions, in particular, to find out whether the relevant agreement is documented.

Among other actions prescribed to auditors in the commented section, it is worthwhile to dwell on the procedure of comparing forecast data for previous periods with actually achieved results.

Such a procedure should allow auditors to draw certain conclusions about how past forecasts have paid off and, on the basis of this, to analyze the extent to which the client's prospective estimates are reliable.

Section “Auditor's conclusions and audit report”

Section 23, in fact, duplicates the provision of the second paragraph of paragraph 7 of the same federal rule (standard), which indicated the impossibility of providing auditors with guarantees regarding the ability of the audited entity to continue its activity, even if in the audit report no mention was made of uncertainties regarding business continuity. The presence of an independent item draws attention to the scope of responsibility of auditors in assessing the applicability of the going concern assumption. In addition, paragraph 23 specifies that auditors do not guarantee that the audited entity will continue to operate and fulfill its obligations over the next twelve months.

• - by including in the unconditionally positive conclusion of the paragraph, which notes the presence of significant uncertainty associated with the conditions and events that cause significant doubts about the ability of the economic entity to continue its activities continuously. Such an audit report is issued if the relevant facts are properly disclosed in the financial (accounting) statements;
• - expressions of opinion with reservation if uncertainty factors are not adequately disclosed in the financial (accounting) statements;
• - the expression of a negative opinion in case of a more serious (than in the case of an opinion with a reservation) non-disclosure of material information in the financial (accounting) statements or if, in accordance with the professional judgment of the auditor, the audited entity cannot continuously continue its activities, and its financial (accounting) statements have been prepared based on the assumption of a going concern;
• - inclusion in the unconditionally positive conclusion of the part that draws attention to the special procedure for the preparation of financial (accounting) statements, if one is drawn up reliably, but based on the inapplicability of the assumption of business continuity.

The federal rule (standard) did not include specific examples of language recommended in international auditing standards (ISAs) for use in audit reports in order to reflect certain problematic aspects related to the principle of business continuity, since such examples may be useful in practical work.

So, in the absence of adequate disclosure of information in the financial statements, ISAs recommend giving a specific reference to the existence of significant uncertainty (which causes significant doubts about the entity's ability to continue its business continuously) and do it as follows.

If an opinion is expressed with a reservation, the ISAs propose the following wording: “The term of the financing agreements for the Company has expired, and the outstanding amounts of debt obligations must be paid on March 19, 20XI. The company was unable to negotiate a change in the financing conditions or receive replacement financing. This situation indicates the presence of significant uncertainty, which raises significant doubts about the ability of the Company to continue its business continuously, and, therefore, the Company may not be able to realize its assets and fulfill its obligations in the course of its normal business. The financial statements (and notes thereto) do not disclose this fact.

In our opinion, with the exception of omission of the information contained in the previous paragraph, the financial statements give a reliable and fair view (or present fairly in all material respects) of the financial position of the Company as of December 31, 20X0, as well as of the results of its activities and the movement of her cash for the year ended on that date ... "

If a negative opinion is expressed, the ISAs recommend the following: “The financing arrangements for the Company have expired and the outstanding amounts of debt should be paid on December 31, 20X0. The company was unable to negotiate a change in the financing conditions or receive substitute financing and therefore is considering initiating the procedure. bankruptcy. These events indicate that there is significant uncertainty that raises significant doubts about the ability of the Company to continue its business continuously, and therefore the Company may not be able to realize its assets and fulfill its obligations in the course of its normal business. The financial statements (and notes thereto) do not disclose this fact.

In our opinion, due to the omission of the information contained in the previous paragraph, the financial statements do not provide a reliable and fair look (or do not represent fair in all material respects) on the financial position of the Company as of December 31, 20X0, as well as on the results its activities and the movement of its cash for the year ended on that date ... "

These quotes are taken from ISA 570, Business Continuity, 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 continuity of activity 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. At the same time, when using international experience, some formulations need to be adapted taking into account well-established domestic traditions and the language prescribed by federal rules (standards).

So, instead of the turnover “The financial statements give a reliable and fair view (or represent fairly in all material respects)” the standard phrase “In our opinion, the financial (accounting) statements of the organization“ XXX ”reflects reliably in all material respects should be used ...”.

This is recorded in paragraph 15 of the federal rule (standard) of audit activity “Auditor's 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 required to analyze the reasons for such a delay, as required by paragraph 31 of the commented federal rule (standard).

When this situation relates to the assumption of business continuity, the need arises for additional audit procedures. We are talking about requesting the management of the audited entity appropriate written explanations, reviewing the client’s future plans and collecting audit evidence to confirm or refute the presence of uncertainties regarding the going concern of the audited entity.