AB Ltd. is facing a temporary decline in sales due to adverse market conditions. However, the management has prepared future cash flow projections…

Going concern is one of the fundamental accounting assumptions. The enterprise is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations. SA 570 requires the auditor to obtain sufficient appropriate audit evidence regarding and conclude on the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements Under the going concern basis of accounting, the financial statements are prepared on the assumption that the entity is a going concern and will continue its operations for the foreseeable future. General purpose financial statements are prepared using the going concern basis of accounting, unless management either intends to liquidate the entity or to cease operations, or has no realistic alternative but to do so. Based on the audit evidence obtained, the auditor also has to conclude whether any material uncertainty exists that may cast significant doubt on the entity’s ability to continue as a going concern The significance of Going Concern is due to its effect on preparation of financial statements. Ability or otherwise of an enterprise to be viewed as going concern affects its preparation of financial statements. When the use of the going concern basis of accounting is appropriate, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business. When an enterprise is not viewed as a going concern, the financial statements are prepared on liquidation basis. For example, inventories may need to be written down as these may be sold for a lower price. Assets may have to be recorded at the likely prices they will fetch. The auditor must report appropriately as required by SA 570, depending on whether the going concern basis is appropriate, whether adequate disclosures are made, and whether a material uncertainty exists.