Going concern reporting and key audit matters

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Going concern reporting and key audit

matters

MODULE 4 | 4.3.2 | STUDENT COMPANION

If the going concern basis is right but a material uncertainty exists and is adequately disclosed, the

opinion stays unmodified and a separate section draws attention to the disclosure. Inadequate disclosure

leads to a qualified or adverse opinion; statements prepared on an inappropriate going concern basis get

an adverse opinion. Key audit matters, required for listed entities, are chosen from the matters

communicated to those charged with governance, narrowed to those that needed significant auditor

attention and then to those of most significance. Each explains why it mattered and how the audit

addressed it.

Going concern conclusions and the report

The auditor concludes Opinion What the report says

Going concern basis appropriate; no material

uncertainty Unmodified

Nothing special about going concern. From periods beginning on

or after 15 December 2026: a Going Concern section in every

report

Basis appropriate; a material uncertainty,

adequately disclosed Unmodified

A section headed Material Uncertainty Related to Going Concern:

points to the note, says the uncertainty may cast significant

doubt, and that the opinion isn't modified

A material uncertainty that is not adequately

disclosed Qualified or adverse Depending on how pervasive the effect is; the basis for the

opinion explains the uncertainty

Going concern basis used, but it isn't appropriate,

e.g. liquidation is imminent Adverse The statements don't give a true and fair view

Management won't make or extend its assessment

when asked Consider the effect Possibly a limitation of scope: a qualified opinion or a disclaimer

Why not modify the opinion for an adequately disclosed uncertainty? The statements aren't misstated: the basis is right and the disclosure is honest.

The section makes sure nobody misses it.

Why the opinion isn't modified: a modified opinion says the statements are materially misstated, or that the

auditor couldn't obtain enough evidence. Neither is true here. The statements use the right basis and tell users

honestly about the uncertainty; the separate section simply makes sure nobody misses that disclosure.

What the section says: it draws attention to the note describing the uncertainty, says those events or conditions

point to a material uncertainty that may cast significant doubt on whether the entity can continue as a going

concern, and confirms that the opinion isn't modified because of it.

The revised standard: for periods beginning on or after 15 December 2026, the revised ASA 570 puts a Going

Concern section in every report, even when there is no material uncertainty. It states the auditor's conclusions

that the going concern basis is appropriate and that no material uncertainty was identified, and that these aren't

a guarantee. For publicly traded entities, where management made significant judgements in reaching its view,

the section also describes how the auditor evaluated management's assessment.

ADVANCED AUDIT AND ASSURANCE | M4 | 4.3.2 | STUDENT COMPANION

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Accounting Ahead | Original study resource | accountingahead.com.au

Case note: The Star Entertainment Group (2024)

By 2024, The Star Entertainment Group, which ran casinos in Sydney, Brisbane and on the Gold Coast, had

been through inquiries that found it unsuitable to hold its casino licences. It faced heavy losses, large regulatory

penalties and the need to raise more funding. Its shares were suspended on 2 September 2024 after it missed

the reporting deadline; its full-year results followed late, on 26 September, and the audited financial report on 30

September. Its auditor, EY, included a section headed Material Uncertainties Relating to Going Concern,

directing readers to the note explaining the uncertainties, including the company's funding needs and the

outcomes of regulatory and legal matters. The opinion itself was unmodified, because the uncertainties were

adequately disclosed.

Why it matters: the opinion was clean, yet for a reader that one section changes how the whole annual report

should be read.

Source: The Star Entertainment Group FY2024 financial report and EY auditor's report (30 September 2024); ASX announcements (2

and 26 September 2024).

Key audit matters

Who must include them: the auditor of a listed entity must communicate key audit matters, and for periods

beginning on or after 15 December 2026 the requirement extends to all publicly traded entities (AUASB 2025-9).

Other entities may include them voluntarily, or because the law requires it. They are the matters that, in the

auditor's judgement, were of most significance in this year's audit.

Choosing key audit matters

Everything communicated to those charged with

governance

Matters that required significant auditor

attention

Matters of most significance

in this year's audit = KEY

AUDIT MATTERS

Voltana's key audit matters: the warranty provision, and revenue recognition

around year end

Significant auditor attention: consider

Higher assessed risks of material misstatement,

or significant risks

Areas of significant management judgement,

such as estimates with high estimation

uncertainty

How significant events or transactions in the

year affected the audit

Each key audit matter explains

Why it was one of most significance

How the audit addressed it

Where the related disclosures are

Required for listed entities; for periods beginning on or

after 15 December 2026, all publicly traded entities

Each description sits in its own subsection and explains why the matter was one of most significance, how it

was addressed in the audit, and where the related disclosures can be found. Specific, entity-tailored wording is

the point: a description that could appear in any company's report tells users nothing.

ADVANCED AUDIT AND ASSURANCE | M4 | 4.3.2 | STUDENT COMPANION

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Voltana's warranty provision as a key audit matter

Key audit matter: Warranty provision (about $18.6 million) Refer to the warranty provision note

Why it was a key audit matter How our audit addressed it

Voltana's warranty provision of about $18.6 million

depends on judgements about how many batteries will

fail over a ten-year warranty. For a newer battery

design with little claims history, those failure rates are

hard to predict, so the estimate carries high estimation

uncertainty and needed significant audit attention.

We engaged an independent engineer to assess expected failure rates

We tested the claims data used in the calculation

We developed our own range for the provision

We compared last year's estimate with the claims actually made

We examined claims paid after year end

We evaluated the disclosure of the estimation uncertainty

Also in Voltana's report: a key audit matter on revenue recognition around the year end

Rules that stop key audit matters being misused

Rule What it means

Not a substitute Never a replacement for proper disclosure by management, for a modified opinion, or for the

material uncertainty section

Not a separate opinion The matters were addressed in forming the opinion on the financial report as a whole

Own section first A matter causing a modified opinion, or a going concern material uncertainty, is by nature a

key audit matter, but it is reported in its own section; the Key Audit Matters section simply

refers to it

Leaving one out Only if law or regulation prevents public disclosure or, in extremely rare cases, the harm of

communicating it could reasonably be expected to exceed the benefit to the public. That

second reason isn't available once the entity has disclosed the matter itself

Nothing to report If there are no key audit matters, the section says so

See also: the Exam Reference Pack, page 6 (going concern outcomes) and page 10 (key audit matter,

emphasis of matter, other matter or other information).

ADVANCED AUDIT AND ASSURANCE | M4 | 4.3.2 | STUDENT COMPANION

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Practice questions

MODULE 4 | 4.3.2 | TRY THESE BEFORE THE WORKED ANSWERS

Question 1 - Which going concern outcome?

For each company, say which reporting outcome applies under the current going concern standard, and why.

Scenario (all imagined listed companies) Reporting outcome Why

(a) Bulloak Grain Storage Ltd. A $40 million bank loan is

due in five months. In August the bank issued a signed,

unconditional offer extending it for three years, and the

forecasts show ample headroom.

(b) Pademelon Software Ltd. It has about eight months

of cash at its current spending, and its plan relies on a

capital raising that isn't yet underwritten. Note 2 explains

this clearly and states that a material uncertainty exists.

(c) Sandpiper Events Ltd. It has lost its largest client and

breached a loan covenant, and the bank hasn't granted a

waiver. The directors refuse to disclose any uncertainty in

the notes.

(d) Currawong Boatbuilders Ltd. In July, before the

financial report was approved, the directors resolved to

stop trading and appoint a liquidator. The report is still

prepared on a going concern basis.

(e) Lyrebird Testing Laboratories Ltd. The auditor

doubts it can repay a loan due shortly after the period

management assessed, and asks the directors to extend

their assessment to cover it. They refuse.

ADVANCED AUDIT AND ASSURANCE | M4 | 4.3.2 | STUDENT COMPANION

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Question 2 - Choose two key audit matters

Wirraway Waste Ltd (imagined), a listed waste-management company, discussed these six matters with its audit

committee during the FY2026 audit. Choose the two you would report as key audit matters, and explain why the

other four are not.

1. The landfill rehabilitation provision of $62 million, based on engineers' estimates of closure and aftercare costs

decades ahead, and on discount rates. The team assessed it as a significant risk.

2. The acquisition in March of a regional recycling business for $48 million, including the first valuation of its

assets and of the goodwill that arose.

3. The change of payroll provider in October. The team tested the transfer of payroll data and found no issues.

4. The planned timing of the audit and the staffing of the audit team.

5. A $5,000 coding error between two expense accounts, found by the team and corrected by management.

6. The firm's confirmation of its independence, and its fees for audit and non-audit services.

Question 3 - Draft the why and how

For one of the two matters you chose, draft the 'why it was a key audit matter' paragraph and the 'how our audit

addressed it' paragraph for Wirraway's auditor's report.

ADVANCED AUDIT AND ASSURANCE | M4 | 4.3.2 | STUDENT COMPANION

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Worked answers

MODULE 4 | 4.3.2 | WORKED ANSWERS - ATTEMPT THE QUESTIONS FIRST

Question 1 - Going concern outcomes

Company Reporting outcome Why

(a) Bulloak Grain

Storage

Unmodified; nothing special on going

concern (revised standard: a Going

Concern section)

The signed, unconditional offer removes the

doubt: the basis is appropriate and there is no

material uncertainty

(b) Pademelon Software Unmodified, with a Material Uncertainty

Related to Going Concern section

pointing to Note 2

A material uncertainty exists, but it is adequately

disclosed, so the statements aren't misstated

(c) Sandpiper Events Qualified or adverse, depending on how

pervasive the effect is

A material uncertainty exists and isn't disclosed;

the basis for the opinion says so

(d) Currawong

Boatbuilders

Adverse With the directors intending to liquidate before

the report was approved, the going concern

basis is inappropriate, so the statements are

pervasively misstated

(e) Lyrebird Testing

Laboratories

Consider the effect on the opinion: a

limitation of scope, so a qualified opinion

or a disclaimer

Without the extended assessment the auditor

may lack sufficient appropriate evidence; tell

those charged with governance

Question 2 - Wirraway's key audit matters

Key audit matters: 1 and 2. The rehabilitation provision is a significant risk and an estimate with high

estimation uncertainty, needing experts and significant judgement. The acquisition is a significant transaction

of the year, with judgemental valuations and goodwill. Both needed significant auditor attention and were of

most significance.

Not 3: a routine change, tested without issues; it didn't need significant attention.

Not 4 or 6: planning, independence and fees must be communicated to the audit committee, but they

describe the audit's arrangements, not significant matters arising in it.

Not 5: a trivial error that was corrected.

Question 3 - A sample draft (rehabilitation provision)

Why it was a key audit matter: Wirraway's $62 million provision covers the cost of closing its landfill sites and

caring for them for decades afterwards. It depends on engineers' estimates of those costs, their timing and the

discount rate, and small changes in these assumptions can move the provision by material amounts. We

therefore considered it one of the matters of most significance in our audit (see the provisions note).

How our audit addressed it: we assessed the competence and objectivity of the engineers who prepared the

estimates; engaged our own expert to challenge the cost assumptions; tested the discount rate against market

data; recalculated the provision and its sensitivity to key assumptions; compared past estimates with actual

outcomes; and evaluated the disclosure of the estimation uncertainty.

ADVANCED AUDIT AND ASSURANCE | M4 | 4.3.2 | WORKED ANSWERS

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