Law Summary
Scope and Purpose of PSA 570
- PSA 570 establishes requirements and guidance for auditors when assessing an entity's ability to continue as a going concern.
- It ensures auditors evaluate whether there are events or conditions that may cast significant doubt on the entity's ability to continue operations for the foreseeable future.
- The standard guides auditors in considering management's plans related to the entity's going concern status.
Key Definitions in PSA 570
- "Going Concern": The assumption that an entity will continue its operations and meet its obligations in the foreseeable future without the intention or necessity to liquidate or cease operations.
- "Significant Doubt": When events or conditions indicate that the entity may not be able to continue as a going concern.
Auditor's Responsibilities Under PSA 570
- Conduct appropriate procedures to identify events or conditions that may raise substantial doubt about the entity's going concern.
- Evaluate management's plans for dealing with such events or conditions, including plans to dispose of assets, borrow money, reduce expenditures, or restructure operations.
- Obtain sufficient appropriate audit evidence regarding the appropriateness of management's use of the going concern assumption in the preparation of financial statements.
Procedures and Reporting Requirements
- Auditors are required to perform risk assessment procedures specifically focused on going concern issues.
- If substantial doubt exists, auditors must consider the adequacy of disclosures in the financial statements related to going concern uncertainties.
- Disclosure is required if there is significant doubt, and continues unless the doubt is alleviated by subsequent events or evidence.
- When the going concern assumption is inappropriate, auditors must express a qualified or adverse opinion.
Implications and Legal Importance
- Adopting PSA 570 aligns auditing practices in the Philippines with international standards, promoting transparency and reliability in financial reporting.
- It imposes a professional duty on auditors to carefully assess and report on an entity's continuation prospects, which is crucial for users of financial statements including investors, creditors, and regulators.
Enforcement and Regulatory Oversight
- Compliance with PSA 570 is mandatory for auditors operating under the jurisdiction of the PRC Board of Accountancy.
- Non-compliance may subject auditors to disciplinary actions under the regulatory framework governing professional conduct and auditing standards in the Philippines.