NFRA flags deeper going concern scrutiny, sets out 35 questions for audit committees
Oct 1, 2026
Cash flows, promoter support, covenant breaches and future funding plans among key areas for auditor scrutiny under SA 570.
An NFRA staff publication has set out 35 potential questions that audit committees may ask statutory auditors while examining going concern assessments, covering cash flow projections, management assumptions, future funding plans, covenant breaches, promoter support and regulatory risks.
The publication, part of the NFRA Auditor Audit Committee Interaction Series on dealing with going concern assessment under SA 570 (Revised), sets out questions across different situations that can arise when assessing whether an entity can continue as a going concern.
It also emphasises that the board and audit committee have responsibilities independent of the statutory auditor and should not simply rely on the auditor’s conclusion while assessing the appropriateness of the going concern basis.
“The auditor is required to evaluate and not prepare the analysis,” the publication says, while noting that the auditor’s role is to evaluate management’s assessment rather than prepare it.
The publication says going concern is a critical judgement in the preparation of financial statements because its consequences extend beyond shareholders to suppliers, lenders, employees and small vendors whose exposure to an entity may be concentrated.
Audit committees face wider questioning
The publication sets out separate responsibilities for management, the board, the audit committee and the statutory auditor.
Management is required to assess the entity’s ability to continue as a going concern. The board is required under the Companies Act, 2013 to state in its Directors’ Responsibility Statement that the annual accounts have been prepared on a going concern basis.
The audit committee, under Section 177 of the Companies Act, 2013 and Regulation 18 of the SEBI Listing Obligations and Disclosure Requirements Regulations, 2015, is required to review the annual financial statements before their submission to the board, including matters required to be included in the Directors’ Responsibility Statement.
The publication consequently says the audit committee is required to look into and assess the appropriateness of the going concern assumption.
The statutory auditor, meanwhile, is required under SA 570 (Revised) to obtain sufficient appropriate audit evidence regarding management’s use of the going concern basis and conclude on its appropriateness and whether a material uncertainty exists.
Cash flow assumptions under the lens
Where events or conditions are identified that may cast significant doubt on a company’s ability to continue as a going concern, the publication sets out questions that audit committees may ask auditors about their evaluation of management’s assessment.
These include whether management’s assessment covers the required period, whether its assumptions and future plans are feasible and whether the auditor has evaluated the process followed by management to arrive at its conclusion.
The framework specifically asks whether the auditor was able to assess the reliability of data underlying cash flow projections and whether there was adequate support for the assumptions.
For instance, where a going concern assessment depends on a proposed sale of assets, the auditor may be questioned on whether there is an identified buyer or market for the asset, its valuation and net realisable value and the expected timing of cash flows.
The publication also asks whether the auditor compared actual results with management’s earlier forecasts and whether sensitivity analysis was performed on critical assumptions.
Promoter support faces evidence test
The publication gives particular attention to cases where a company’s ability to continue as a going concern depends on support from a parent entity, promoter or another party.
Audit committees may ask whether the auditor obtained written confirmation of the terms and conditions of such support directly from the supporting party.
They may also question the auditor on the enforceability of the support arrangement and whether the supporting party has the financial ability to provide the support if required.
The framework further asks whether the auditor considered existing or potential breaches of financial covenants and how their impact was considered by management and assessed by the auditor.
Six situations, different reporting outcomes
The publication sets out six situations under SA 570 (Revised), with different consequences for the auditor’s report.
Where no events or conditions casting significant doubt are identified, the auditor concludes on the appropriateness of the going concern basis and no going concern reporting arises.
Where events or conditions are identified but the auditor concludes that no material uncertainty exists, an unmodified opinion may still be issued if the financial statements provide adequate disclosure about those events or conditions.
Where the going concern basis is appropriate but a material uncertainty exists and the disclosure is adequate, the auditor’s report contains a separate Material Uncertainty Related to Going Concern section.
If a material uncertainty exists but the disclosure is inadequate, the publication sets out the possibility of a qualified opinion where the effects are material but not pervasive, and an adverse opinion where the effects are material and pervasive.
The publication also deals with situations where the going concern basis has been used even though it is inappropriate, as well as cases where another acceptable basis has been used.
CARO and SA 570 can produce different answers
The publication separately highlights the distinction between the going concern assessment under SA 570 and the requirement under Clause 3(xix) of the Companies Auditor’s Report Order, 2020.
Under CARO 2020, the auditor considers financial ratios, ageing and expected dates of realisation of financial assets and payment of financial liabilities, other information accompanying the financial statements and the plans of the board and management.
The auditor is required to report whether, based on this assessment, there is no material uncertainty as on the date of the audit report and whether the company is capable of meeting its liabilities existing at the balance sheet date as and when they fall due within one year.
The publication stresses that this is a distinct requirement from SA 570 and requires a different lens. As a result, the auditor’s responses under the two assessments may differ.
It gives examples of circumstances in which a company may have sufficient current assets or arranged short term financing to meet existing liabilities, while wider issues may nevertheless create significant doubt under SA 570.
These could include recurring operating losses, erosion of net worth, loss of a key customer or licence necessary for the business, discontinuation of a principal product line or absence of committed funding beyond the immediate schedule of existing liabilities.
Regulatory risks also enter the assessment
For regulated entities, the publication asks audit committees to question whether auditors have assessed compliance with applicable capital, solvency, liquidity and other prudential requirements.
It also asks whether auditors have assessed the impact of a change in law, regulation or government policy expected to adversely affect the company.
The framework further asks whether disclosures regarding a breach or potential breach of prudential norms are adequate.
The publication says the board’s statement and audit committee’s review of the going concern basis are their respective responsibilities and are expected to be discharged independently of the auditor’s work.
“The audit committee’s first engagement on this subject is likely to be with the management,” the publication says, noting that management is required to prepare the assessment while the auditor’s role under SA 570 (Revised) is to evaluate that assessment.
The publication also notes that reliance on support from a parent or promoter, group structures, regulated entities and companies undergoing insolvency resolution may require modifications to the questions depending on the circumstances and complexity of the entity or group.
[ET CFO]
