The International Auditing and Assurance Standards Board has issued a practice alert to help auditors and management assess the impact of the credit crisis on going-concern assumptions.
The IAASB, an independent standard-setting board under the auspices of the International Federation of Accountants, released the new practice alert, Audit Considerations in Respect of Going Concern in the Current Economic Environment.
The alert highlights areas within International Standard on Auditing 570, Going Concern, as well as other ISAs, that are particularly relevant in the current economic environment, and provides additional guidance for auditors in evaluating management's use of the going-concern assumption. It also raises awareness of issues surrounding liquidity and credit risk that may create new uncertainties for entities or exacerbate those already existing.
"While the alert notes that auditors are always required to evaluate management's use of the going-concern assumption, given current economic conditions, the evaluation will take on even more importance and is likely to be more complex," said IAASB executive director of professional standards James Sylph in a statement. "This is particularly the case with regard to the availability of credit and the impact of the current economic environment on budgets and forecasts, factors which are likely to result in additional disclosures in the current period's financial statements.
This is the second alert issued by the IAASB staff. The first, Challenges in Auditing Fair Value Accounting Estimates in the Current Market Environment, was issued in October 2008 to help auditors address the challenges of auditing fair value accounting estimates in times of market uncertainty. Both alerts can be downloaded for free at the IFAC Web site, www.ifac.org.
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