A nonissuer manufacturer has lost money three years running, defaulted on a covenant in November, and is negotiating a plant sale to fund operations through next summer. Management's draft statements do not mention any of this. The exam question is not whether the company will survive, it is whether the auditor's procedures, conclusion, and report meet AU-C 570.
HIGH-FREQUENCY: Going concern is the assumption that the entity will continue to operate and will not be forced to liquidate or curtail operations. AU-C 570 governs nonissuers; PCAOB AS 2415 governs issuers. The objectives match: obtain sufficient appropriate evidence about management's use of the going-concern basis, conclude on substantial doubt, and report appropriately.
The exam's favorite difference is the time horizon. AU-C 570 runs one year from the date the financial statements are available to be issued. AS 2415 runs one year from the balance sheet date. For a calendar-year nonissuer with statements available March 15, 2026, AU-C 570 covers through March 15, 2027, three months longer than the AS 2415 window.
Common mistakes
- Treating one indicator as conclusive. A single working-capital deficit or one year of losses does not automatically raise substantial doubt. AU-C 570 requires considering conditions in the aggregate with management's plans.
- Applying the wrong time horizon. AU-C 570 measures from the date the statements are available to be issued; AS 2415 measures from the balance sheet date. Mixing them produces wrong dates and wrong conclusions. Nonissuer signals AU-C 570; issuer signals AS 2415.
- Choosing "qualified" when doubt remains and disclosure is adequate. With adequate disclosure, the opinion is unmodified with an emphasis-of-matter paragraph. Qualified is reserved for inadequate disclosure; adverse for inadequate disclosure that is pervasive.
Bottom line
- AU-C 570 (nonissuers) requires evaluating substantial doubt for a reasonable period, within one year after the date the financial statements are available to be issued.
- PCAOB AS 2415 (issuers) uses the same framework but measures one year from the balance sheet date.
- Indicators split into negative trends (recurring losses, working-capital deficits, negative cash flows, adverse ratios) and other indicators (default, dividend arrearages, denial of trade credit, restructuring, legal proceedings).
- Substantial doubt is evaluated in the aggregate, not on any single indicator.
Exam shortcut
When the fact pattern names a private company and gives a date the statements are available to be issued, anchor the reasonable period on that date plus one year under AU-C 570. When the fact pattern names a public company, anchor on the balance sheet date plus one year under AS 2415. Get the date right first; the rest follows.
The full lesson (about 1,814 words, 12 min read) adds 1 worked example, all 5 common mistakes, a self-check, free in the app.
Learning objectives
- III.E5
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