Under the going-concern basis of accounting, management prepares the financial statements under the assumption that the organization will continue to operate into the foreseeable future, unless management has a plan to cease operations or liquidate the business. Auditors are obligated to obtain evidence to determine whether the going concern basis of accounting is appropriate given current circumstances. The COVID-19 pandemic called into question the ability of some organizations to remain a going concern, particularly organizations in the hospitality, retail, and travel industries. As a result of the uncertainties associated with the pandemic, management and those charged with governance may need to provide disclosures about financial difficulties that the organization is experiencing that might call into question its ability to remain a going concern.

Obtain a copy of the report by the International Auditing and Assurance Standards Board, “Staff Audit Practice Alert – Going Concern in the Current Evolving Environment – Audit Considerations for the Impact of COVID-19” (April 2020) https://www.ifac.org/system/files/publications/files/IAASB-Staff -Alert-Going-Concern-April-2020.pdf. 

a. Explain the types of events or conditions that may exist as a result of the pandemic that might call into question an organization’s ability to remain a going concern. 

b. What matters should auditors consider with respect to evaluating disclosures relevant to the pandemic? How will professional skepticism play a part in evaluating such management disclosures? 

c. How can those charged with governance (e.g., the audit committee) assist management and the auditor with regard to difficulties they might each encounter because of the pandemic? 

d. Express your opinion on whether you believe that failing to report the severity of operational continuity problems and the ability to remain a going concern would constitute financial reporting fraud on the part of management.