Document ID: chunk:federal_register_of_legislation:F2023C00340:reg:10:p10
Version: federal_register_of_legislation:F2023C00340
Segment Type: reg
Provision Reference: reg 10 (pt 10/29)
Character Range: 32640–35684

policy expected to adversely affect the entity.

           * Uninsured or underinsured catastrophes when they occur.

    The significance of such events or conditions often can be mitigated by other factors.  For example, the effect of an entity being unable to make its normal debt repayments may be counter‑balanced by management's plans to maintain adequate cash flows by alternative means, such as by disposing of assets, rescheduling loan repayments, or obtaining additional capital.  Similarly, the loss of a principal supplier may be mitigated by the availability of a suitable alternative source of supply.

    A4.             The risk assessment procedures required by paragraph 10 help the auditor to determine whether management's use of the going concern basis of accounting is likely to be an important issue and its impact on planning the audit.  These procedures also allow for more timely discussions with management, including a discussion of management's plans and resolution of any identified going concern issues.

Considerations Specific to Smaller Entities (Ref: Para. 10)

    A5.             The size of an entity may affect its ability to withstand adverse conditions.  Small entities may be able to respond quickly to exploit opportunities, but may lack reserves to sustain operations.

    A6.             Conditions of particular relevance to small entities include the risk that banks and other lenders may cease to support the entity, as well as the possible loss of a principal supplier, major customer, key employee, or the right to operate under a licence, franchise or other legal agreement.

Remaining Alert throughout the Audit for Audit Evidence about Events or Conditions (Ref: Para. 11)

    A7.             ASA 315 requires the auditor to revise the auditor's risk assessment and modify the further planned audit procedures accordingly when additional audit evidence is obtained during the course of the audit that affects the auditor's assessment of risk.[10]  If events or conditions that may cast significant doubt on the entity's ability to continue as a going concern are identified after the auditor's risk assessments are made, in addition to performing the procedures in paragraph 16, the auditor's assessment of the risks of material misstatement may need to be revised.  The existence of such events or conditions may also affect the nature, timing and extent of the auditor's further procedures in response to the assessed risks.  ASA 330[11] establishes requirements and provides guidance on this issue.

Evaluating Management's Assessment

Management's Assessment and Supporting Analysis and the Auditor's Evaluation (Ref: Para. 12)

    A8.             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.

    A9.             It is not the auditor's responsibility to rectify the lack of analysis by management.  In some circumstances, however, the lack