EF & Co., Chartered Accountants, are the appointed statutory auditors of UVW Ltd. for the financial year ended 31st March, 2026. During the…

Evaluating management's assessment: The auditor shall evaluate management's assessment of the entity's ability to continue as a going concern. Management's assessment of the entity's ability to continue as a going concern is a key part of the auditor's consideration of management's use of the going concern basis of accounting. In the case of UVW Ltd., it is not the auditor's responsibility to rectify the lack of analysis by management. In some circumstances, however, the lack of detailed analysis by management to support its assessment may not prevent the auditor from concluding whether management's use of the going concern basis of accounting is appropriate in the circumstances. For example, when there is a history of profitable operations and a ready access to financial resources, as in the case of UVW Ltd., management may make its assessment without detailed analysis. In this case, the auditor's evaluation of the appropriateness of management's assessment may be made without performing detailed evaluation procedures if the auditor's other audit procedures are sufficient to enable the auditor to conclude whether management's use of the going concern basis of accounting in the preparation of the financial statements is appropriate in the circumstances. However, in circumstances where the entity does not have strong financial indicators or where uncertainty exists, evaluating management's assessment of the entity's ability to continue as a going concern, may include an evaluation of the process management followed to make its assessment, the assumptions on which the assessment is based and management's plans for future action and whether management's plans are feasible in the circumstances. In the separate case of XYZ Ltd., while evaluating management's assessment of the entity's ability to continue as a going concern, the auditor shall cover the same period as that used by management to make its assessment as required by the applicable financial reporting framework, or by law or regulation if it specifies a longer period. If management's assessment of the entity's ability to continue as a going concern covers less than twelve months from the date of the financial statements, the auditor shall request management to extend its assessment period to at least twelve months from that date. Accordingly, in the case of UVW Ltd., the auditor may conclude that management's use of the going concern basis of accounting is appropriate even without detailed analysis, provided sufficient appropriate audit evidence is available from other audit procedures and the company continues to demonstrate profitable operations and access to financial resources. However, in the case of XYZ Ltd., management's assessment is inadequate as it covers only 9 months from the date of the financial statements. Therefore, the auditor should request management to extend the assessment period to at least twelve months and thereafter evaluate the appropriateness of the going concern assumption in accordance with SA 570 (Revised).