Completing the Audit: Going Concern, Subsequent Events, and Written Representations

Learning objectives

By the end of this chapter, you should be able to:

• Evaluate going concern indicators and design audit responses that address the risks identified.
• Distinguish events after the reporting date that require adjustment from those that require disclosure only.
• Apply completion analytical procedures to spot unexpected movements and decide whether further work is needed.
• Use written representations appropriately, recognising what they add to the evidence base and what they cannot replace.
• Conclude on uncorrected misstatements and ensure completion work is properly documented for sign-off.

Overview & key concepts

Audit completion brings together the evidence obtained during planning and fieldwork and tests whether the financial statements, taken as a whole, are consistent with that evidence. Four areas commonly drive late-stage audit work and can change the overall conclusion:

• Going concern: whether the financial statements are prepared on an appropriate basis and whether disclosures about uncertainty are adequate.
• Events after the reporting date: whether year-end amounts need to be updated and whether users need disclosure of significant post-year-end developments.
• Written representations: management’s written confirmation of key matters, used to support (not replace) other audit evidence.
• Completion analytical procedures and uncorrected misstatements: whether the final set of numbers “makes sense” and whether remaining errors could influence users’ decisions.

Core theory and frameworks

Going concern assessment (ISA 570)

What is being assessed?
The auditor evaluates management’s going concern assessment and whether the going concern basis of preparation is appropriate. The assessment period is driven by the applicable financial reporting framework and legal requirements and is not less than 12 months from the relevant date specified by those requirements (commonly aligned with the reporting date in practice, but not always).

Common indicators of doubt

Financial indicators:

• recurring losses or a significant decline in profitability
• negative operating cash flows or deteriorating liquidity
• inability to refinance, or dependence on short-term funding
• breach (or likely breach) of loan terms
• overdue payables, stretched credit terms, or inability to pay debts on time

Operational and other indicators:

• loss of key customers, suppliers, licences, or staff
• major litigation or regulatory action
• plans to cease operations, sell major assets, or restructure under distress
• adverse market conditions that undermine the business model

Audit responses (typical completion work)

1. Obtain and challenge forecasts
   • Agree opening balances to audited figures.
   • Reconcile forecast cash flows to known contracts, order books, committed costs, and financing arrangements.
   • Check mathematical integrity and internal consistency (profit, working capital, cash, and debt servicing).
2. Stress test key assumptions
   • Model plausible downside scenarios (lower volumes, weaker margins, slower collections, higher input costs).
   • Focus on headroom against covenants and liquidity pinch points.
3. Evaluate funding and lender support
   • Inspect loan agreements for covenant definitions, testing dates, and consequences of breach.
   • Obtain direct evidence where possible (e.g., lender correspondence, revised terms, waivers signed before authorisation).
   • Treat informal assurances cautiously unless supported by reliable documentation and the lender’s capacity and intent.
4. Consider management actions and feasibility
   • Assess whether cost reductions and restructuring are within management’s control and supported by evidence (approved budgets, signed supplier agreements, implementation plans).
   • Where plans depend on external actions (new finance, asset sales), obtain evidence of progress and realistic timelines.

Linking the going concern conclusion to the audit report
Start by concluding on the accounting basis: if management can demonstrate a realistic ability to continue trading (supported forecasts, feasible actions, and credible funding), then using the going concern basis can be appropriate. If the basis is appropriate, the next question is whether there remains a level of uncertainty that is significant for users. Where such uncertainty exists, the audit report outcome is driven by disclosure quality: clear, entity-specific disclosure supports an unmodified opinion with a dedicated section drawing attention to the material uncertainty; weak or incomplete disclosure is treated as a misstatement and leads to a modified opinion depending on how pervasive the omission is. If the entity cannot support going concern at all but the accounts are still prepared on that basis, the issue is fundamental and the opinion is typically adverse.
Where there is no material uncertainty but the judgement was challenging, the matter may still be significant and, where applicable, may be communicated as a key audit matter rather than a material uncertainty section.

If going concern basis is not used
Where an alternative basis is required, measurement and presentation will change. At a high level, this may include accelerated impairment reviews, revised recoverability assessments for receivables and inventory, reclassification of assets and liabilities based on realisation/settlement expectations, and recognition of additional provisions where obligations are triggered by closure or restructuring decisions.

Events after the reporting date: accounting treatment and audit responsibilities (IAS 10 and ISA 560)

Accounting window (IAS 10)
Events after the reporting date are those occurring between the reporting date and the date the financial statements are authorised for issue.

Audit work window (ISA 560)
The auditor’s completion procedures are normally designed to identify relevant events up to the date of the auditor’s report. If facts are discovered after the auditor’s report date, the auditor evaluates whether the financial statements and the audit report need amendment and follows the required steps for subsequent discovery of facts (including communication with management and, where applicable, those charged with governance).

Events after the reporting date (how to think about them)

After year end, new information arrives. The key question is whether the information changes the measurement of a balance that already existed at year end, or whether it describes a new situation that only began later.

If the year-end balance was already “in play” (the risk, obligation, or condition existed by the reporting date), later developments can be treated as better evidence about the year-end estimate. In that case, the numbers may need updating.

If the situation only starts after year end, the year-end numbers usually stay as they were. Even so, users may still need a clear note if the later event is important to understanding the entity’s position or future prospects.

A practical classification approach

• Identify the balance or disclosure area affected (e.g., receivables, provisions, inventory).
• Consider what was known (or could reasonably be inferred) at the reporting date.
• Decide whether the later development strengthens evidence about a year-end condition or introduces a new post-year-end condition.
• Conclude: update measurement or disclose significant later developments.

Typical examples

Usually update measurement:

• settlement of litigation that confirms a year-end obligation
• customer insolvency that confirms impairment indicators existing at year end
• discovery of errors or fraud indicating year-end misstatement
• new information supporting a revised year-end inventory valuation

Usually disclose only (if significant):

• major acquisition/disposal after year end
• major casualty losses after year end relating to post-year-end conditions (disclose if material and include the estimated financial effect, or state that an estimate cannot be made reliably)
• large new financing arrangements agreed after year end (where not correcting a year-end classification/measurement issue)

Completion analytical procedures (ISA 520)

Completion analytics are final-stage reasonableness checks performed on the near-final financial statements. They help the auditor reach an overall conclusion on whether the financial statements are consistent with the auditor’s understanding of the entity and with the audit evidence obtained.

Expectation and follow-up are essential

• Form an expectation based on the auditor’s understanding and evidence obtained.
• Define what counts as “unexpected” (for example, a threshold or range) and document it.
• Investigate differences that are not consistent with the understanding of the entity or other audit evidence.

Common analyses

• gross margin and contribution trends by product line
• receivables days, inventory days, and payables days
• operating expense ratios to revenue
• cash conversion cycle movements
• covenant metrics and gearing changes
• unusual relationships (e.g., revenue growth with falling cash receipts)

Written representations (ISA 580)

Written representations are management’s signed written confirmations on matters that are important to the audit conclusion and where evidence may otherwise be incomplete or difficult to obtain.

Practical requirements

• Representations are dated as of the auditor’s report date (or as near as practicable) and cover all periods referenced.
• They are signed by appropriate members of management with responsibility and authority for the financial statements and knowledge of the matters represented.

What written representations add (and what they can’t fix)
Written representations are most useful for confirming matters that are largely within management’s knowledge. This includes completeness of disclosures, responsibility for the financial statements, and whether all relevant information has been made available.

However, a representation cannot convert an unsupported assertion into reliable evidence. Where the audit needs external corroboration (such as lender intentions, legal outcomes, or asset valuations), the auditor still needs evidence from records, third parties, or robust audit procedures. If a representation conflicts with what you’ve already found, that conflict must be resolved.

When management will not sign
If management declines to provide representations the auditor reasonably needs, the auditor loses a key confirmation over completeness and responsibility. That is a limitation on the evidence available and may also raise concerns about management’s reliability, so the auditor reassesses risk and considers whether additional work is possible. The opinion consequence depends on how central the missing representations are: it may result in a qualification, and if the missing evidence is pervasive it can lead to a disclaimer. In some circumstances, refusal may also cast doubt on management integrity and, where permitted by law or regulation, may lead the auditor to consider withdrawal.

Uncorrected misstatements (ISA 450)

Uncorrected misstatements are errors identified during the audit that management chooses not to adjust.

Accumulation and evaluation

• Misstatements are accumulated other than those that are clearly trivial.
• The auditor requests correction of identified misstatements.
• Each misstatement and the aggregate are evaluated against materiality, including qualitative effects (for example, turning a profit into a loss, affecting covenant compliance, or weakening key disclosures).

Communication and reporting implications

• Uncorrected misstatements are communicated to those charged with governance.
• The auditor considers whether uncorrected misstatements indicate bias and whether they affect the audit opinion.

Documentation and audit sign-off

Completion documentation should show:

• the final risk assessment and how it was addressed
• the going concern evaluation, evidence obtained, and conclusion (including reporting implications)
• events after the reporting date procedures performed, events identified, and classification rationale
• completion analytical procedures performed, expectations set, results, and follow-up
• a summary of uncorrected misstatements and the overall conclusion
• review notes cleared and evidence of appropriate senior review

Worked example

Narrative scenario

A manufacturing company, XYZ Ltd, is completing its audit for the year ended 31 December 2025. The company has experienced declining sales and breached a debt covenant shortly after year end. Management states that the lender has historically been supportive and that a turnaround plan is being implemented.

After year end:

• A major customer declared bankruptcy.
• A fire occurred at a new warehouse that was purchased after year end.

Management has provided written representations confirming its responsibilities and the completeness of information provided.

Required

1. Assess the going concern status of XYZ Ltd and determine the appropriate audit response.
2. Classify the events after the reporting date and evaluate their impact on the financial statements.
3. Evaluate the appropriateness of the written representations provided by management.
4. Identify any uncorrected misstatements and assess their impact on the audit conclusion.
5. Document the audit conclusions and ensure proper sign-off.

Solution

1) Going concern assessment and audit response (ISA 570)

Indicators of potential doubt present

• declining sales (pressure on profitability and cash generation)
• covenant breach shortly after year end (possible liquidity pressure and risk of lender action)

Exam-relevant nuance (covenant breach timing)
A breach “shortly after year end” may or may not reflect a year-end condition. The covenant definition and testing dates matter. If compliance is tested at year end (or is driven by year-end figures), the breach may indicate that underlying pressure existed at year end and may also affect classification, disclosure, or the assessment of uncertainty.

Targeted audit response

a) Obtain management’s assessment and forecast period

• Obtain management’s formal going concern assessment covering the period required by the reporting framework and law (not less than 12 months from the relevant date).
• Agree forecast opening balances to audited year-end figures (cash, debt, working capital).

b) Challenge assumptions in the forecast

• Compare forecast sales volumes and margins to recent trading, confirmed orders, available capacity, and credible market information used by management.
• Verify planned cost reductions using supporting evidence (approved budgets, contracts, implementation plans).
• Check that forecast working capital movements are consistent with realistic collection, inventory, and supplier payment assumptions.

c) Focus on covenant breach and funding

• Inspect the loan agreement to identify covenant terms, testing dates, and consequences of breach (including any demand repayment clauses).
• Obtain reliable evidence of lender support (preferably a signed waiver or amendment effective for the relevant period and available before authorisation).
• Treat informal statements of support as insufficient unless corroborated by robust documentation.

d) Stress test headroom

• Model plausible downside scenarios and identify whether liquidity shortfalls or covenant failures occur.
• Consider whether management actions are controllable and timely enough to prevent breach or cash shortfall.

Conclude and link to audit reporting

• If the going concern basis is appropriate and uncertainty is adequately disclosed where necessary → unmodified opinion, with a dedicated material uncertainty section if a material uncertainty exists.
• If disclosure is inadequate → modified opinion based on pervasiveness.
• If the going concern basis is inappropriate but used → typically an adverse opinion.
• If there is no material uncertainty but judgement was difficult, the matter may still be significant and, where applicable, may be reported as a key audit matter.

2) Events after the reporting date: classification and impact (IAS 10, ISA 560)

(i) Major customer bankruptcy after year end

Classification depends on whether the customer’s financial difficulty existed at 31 December 2025.

• If evidence indicates the customer was already in serious financial difficulty at year end (overdue balances, failed payments, known restructuring, credit downgrades, adverse correspondence), the bankruptcy provides stronger evidence about the recoverability of the year-end receivable.
  • Accounting impact: update year-end impairment (expected credit loss/allowance) and related disclosures.
• If the difficulty arose from events after year end, the year-end receivable may not require adjustment.
  • Accounting impact: consider disclosure if significant, especially where there is customer concentration risk.

(ii) Fire at the new warehouse purchased after year end

This typically relates to a post-year-end condition affecting a post-year-end asset.

• Accounting impact: no change to year-end figures; disclose if significant, describing the nature of the incident and the estimated financial effect (or stating that an estimate cannot be made reliably).

Audit follow-through

• Ensure procedures are performed up to the auditor’s report date.
• If a relevant fact is discovered after the report date, apply the required post-report procedures.

3) Written representations: appropriateness and use (ISA 580)

What to expect in the representation letter

• confirmation of responsibility for preparing the financial statements and providing information
• confirmation that all known liabilities, commitments, and contingencies have been disclosed
• confirmation that all events after the reporting date requiring adjustment or disclosure have been communicated
• confirmation of key going concern assumptions and the completeness of relevant information
• acknowledgement of uncorrected misstatements and management’s view on their immateriality

Practical points

• The letter should be dated as of the auditor’s report date (or as near as practicable).
• It should be signed by those with responsibility and authority for the financial statements and knowledge of the matters represented.

If management refuses to provide representations
Treat this as a limitation on evidence available and consider whether additional work is possible. The opinion impact depends on pervasiveness and may result in a qualification or, if pervasive, a disclaimer. Refusal may also raise concerns about management reliability and, where permitted, may lead to consideration of withdrawal.

4) Uncorrected misstatements: identification and impact (ISA 450)

Although the scenario does not quantify errors, completion work must still be structured:

• Accumulate misstatements other than those clearly trivial.
• Request correction from management.
• Evaluate uncorrected items individually and in aggregate against materiality, including qualitative effects (covenants, going concern disclosure, key performance trends).
• Communicate uncorrected misstatements to those charged with governance and consider implications for the opinion.

5) Documentation and sign-off

Ensure the file contains:

• a going concern memo (indicators, forecast testing, covenant analysis, funding evidence, stress testing, conclusion and reporting link)
• an events after the reporting date summary (procedures performed, events identified, classification rationale, adjustment/disclosure conclusion)
• completion analytics documentation (expectations, thresholds, results, explanations, and follow-up testing)
• an uncorrected misstatements schedule (accumulation, correction requests, governance communication, conclusion)
• evidence of appropriate review and clearance of completion points before the auditor’s report date

Exam triggers

• Material uncertainty and disclosure: if significant doubt remains but going concern basis is used, disclosure quality determines whether the opinion stays unmodified with a dedicated material uncertainty section or becomes modified.
• No material uncertainty but difficult judgement: the report may remain unmodified, and where applicable the matter may be communicated as a key audit matter.
• Inadequate going concern disclosure: treat as a misstatement by omission; modify the opinion based on pervasiveness.
• Refusal of written representations: evidence limitation and potential integrity concern; consider qualification or disclaimer depending on pervasiveness, and withdrawal where permitted.
• Facts found after the auditor’s report date: apply the required post-report procedures; do not treat as routine subsequent events work.

Common pitfalls and misunderstandings

• Misclassifying events after the reporting date by focusing on size rather than whether the later development changes evidence about year-end measurement.
• Treating informal lender reassurance as conclusive instead of obtaining reliable written evidence.
• Accepting forecasts without anchoring to audited openings and testing key assumptions.
• Missing the qualitative impact of misstatements (especially covenants, solvency narratives, and disclosures).
• Weak completion analytics that do not set expectations or define what counts as “unexpected.”
• Assuming written representations can replace external corroboration.
• Inadequate documentation of judgement-heavy areas, undermining sign-off support.

Summary and further reading

Audit completion focuses on whether the final financial statements remain consistent with the evidence obtained. Key completion areas include going concern (forecast credibility, covenant and funding evidence, and disclosure adequacy), events after the reporting date (whether year-end measurement changes or disclosure is required), and written representations (to support completeness and responsibility). Completion analytical procedures require expectations and follow-up on unexpected differences and contribute to the auditor’s overall conclusion on the financial statements. Any uncorrected misstatements must be accumulated (except those clearly trivial), evaluated for materiality individually and in aggregate, communicated to governance, and considered for opinion impact. Strong documentation ties each conclusion to evidence and supports sign-off.

FAQ

What is the significance of the going concern assumption in an audit?

It determines whether the financial statements are prepared on an appropriate basis and what disclosures users need about uncertainty. The audit conclusion depends on the robustness of management’s assessment, the evidence supporting forecasts and funding, and the adequacy of disclosures where significant doubt exists.

How are events after the reporting date treated?

New information after year end is assessed to decide whether it changes the measurement of a year-end balance (update the numbers) or describes a new situation that began later (no change to year-end numbers, but disclose if significant). Audit procedures are designed to identify such matters up to the auditor’s report date, with specific steps required if facts are found after that date.

What role do written representations play?

They confirm matters largely within management’s knowledge (completeness and responsibility) and support the evidence base. They cannot replace independent evidence where external corroboration is required.

Why is stress-testing forecasts important?

Stress testing evaluates whether the entity has enough headroom if performance is worse than expected and whether liquidity or covenant breaches could arise under plausible downside scenarios. This often drives whether uncertainty disclosures are necessary.

What are the implications of uncorrected misstatements?

Misstatements (other than clearly trivial) are accumulated and management is asked to correct them. Uncorrected items are evaluated individually and in aggregate, communicated to those charged with governance, and considered for their impact on the audit opinion.

Glossary

Going concern
A basis of preparation assuming the entity will continue operating and meet obligations as they fall due over the assessment period required by the applicable reporting framework and law.

Material uncertainty
A significant level of uncertainty related to going concern that could influence user decisions and therefore requires clear, entity-specific disclosure when the going concern basis is used.

Events after the reporting date
Events occurring between the reporting date and the date the financial statements are authorised for issue (accounting definition). Audit responsibilities include procedures up to the auditor’s report date, with specific actions required if facts are discovered after that date.

Adjusting (measurement-updating) event
A post-year-end development that provides stronger evidence about a condition affecting measurement at the reporting date, leading to updated year-end amounts.

Non-adjusting (disclosure-type) event
A post-year-end development describing a new condition that began after the reporting date; year-end amounts are not changed, but disclosure may be needed if significant.

Written representations
Management’s signed written confirmations dated as of the auditor’s report date (or as near as practicable), supporting the audit evidence base, particularly around completeness and responsibility.

Completion analytical procedures
High-level analyses performed near the end of the audit requiring the auditor to form expectations, define what is unexpected, and investigate differences not consistent with the understanding of the entity or other evidence.

Uncorrected misstatements
Misstatements identified during the audit that management has not adjusted; accumulated (except clearly trivial items), evaluated for materiality individually and in aggregate, communicated to governance, and considered for opinion impact.

Covenant
A condition in a borrowing arrangement (often a ratio or restriction) that, if breached, may give the lender rights such as demanding repayment or renegotiating terms.

Cash flow forecast
A forward-looking schedule of expected cash inflows and outflows used to assess liquidity, covenant headroom, and the feasibility of management’s plans.