Going concern guidance for review engagements

Our previous article on “Going Concern Guidance for Audit Engagements” discussed the impact of the current health and economic crisis on an auditor’s evaluation of an entity’s ability to continue as a going concern. It also discussed the required accounting and disclosure requirements for all types of for-profit and nonprofit entities found in FASB ASC 205-40, Presentation of Financial Statements – Going Concern. This blog post focuses on the going concern considerations related to review engagements.

For review engagements, the going concern guidance is in AR-C 90A, Review Engagements, paragraphs .65-.69.

If the applicable financial reporting framework includes requirements for management to evaluate the entity's ability to continue as a going concern for a reasonable period of time (such as GAAP), review procedures should focus on determining the appropriateness of using the going concern basis, management's evaluation of whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern, management's plans to mitigate such doubts (if applicable), and the adequacy of the related financial statement disclosures.

If the applicable financial reporting framework does not include requirements for management to evaluate the entity's ability to continue as a going concern for a reasonable period of time (such as the cash basis of accounting), review procedures should focus on inquiring of management about the appropriateness of using the going concern basis, inquiring of management about its plans to mitigate substantial doubts about the entity's ability to continue as a going concern (if applicable), and the adequacy of the related financial statement disclosures.

The accountant's review report should include an emphasis-of-matter paragraph if the accountant concludes that substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time exists and management's plans do not alleviate the substantial doubt. Following is an example of an emphasis-of-matter paragraph regarding going concern when the entity is required under the applicable financial reporting framework to include a statement in the notes to the financial statements that substantial doubt exists:

Emphasis of Matter Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note X to the financial statements, the Company has been required by governmental authorities to close a number of its locations as a result of the COVID-19 pandemic, and its suppliers and customers have also been impacted by those governmental restrictions. The closures have caused a material adverse effect on the Company's revenues, results of operations, and cash flows, including the Company's ability to meet its obligations when due; and the Company has stated that substantial doubt exists about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding those matters are also described in Note X. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our conclusion is not modified with respect to that matter.

Following is an example of an emphasis-of matter-paragraph regarding going concern when the entity is not required under the applicable financial reporting framework to include a statement in the notes to the financial statements that substantial doubt exists.

Emphasis of Matter Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note X to the financial statements, the Company has been required by governmental authorities to close a number of its locations as a result of the COVID-19 pandemic, and its suppliers and customers have also been impacted by those governmental restrictions. The closures have caused a material adverse effect on the Company's revenues, results of operations, and cash flows, including the Company's ability to meet its obligations when due, which raises substantial doubt about the Company's ability to continue as a going concern. Management's evaluation of the events and conditions and management's plans regarding those matters are also described in Note X. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our conclusion is not modified with respect to that matter.


If the accountant expects to include an emphasis-of-matter paragraph in the accountant's review report, the accountant should communicate with management regarding this expectation and the proposed wording of this paragraph (AR-C 90.55 AR-C 90.55).


If adequate going concern disclosures are not made in the financial statements, accountants should consider whether to modify the review report by disclosing the GAAP (or other financial reporting framework) departure in a separate paragraph, or to withdraw from the review engagement if modifying the report is not adequate to address the deficiencies in the financial statements as a whole. Prior to the adoption of SSARS No. 25, Materiality in a Review of Financial Statements and Adverse Conclusions, the review report should not include a statement that the financial statements are not in accordance with the applicable financial reporting framework because this would be the equivalent of expressing an adverse opinion that cannot be expressed in a review engagement. After the implementation of SSARS No. 25, adverse conclusions will be permitted.

As always, Thomson Reuters is ready to help with the tools and services you need to perform your review engagements, including: PPC’s Guide to Compilation and Review Engagements, and PPC’s Guide to Preparing Financial Statements.