ISA 570 Revised: New Event and Condition Assessment Framework

What changed and why the IAASB rewrote the framework

You're reviewing a client's going concern working paper. The entity has a €5M loan maturing in eight months. Management says refinancing is already in progress and expects to close within six weeks. Under the current standard, most teams would note the event, reference the mitigation plan, and conclude that no material uncertainty exists. Under ISA 570 (Revised 2024), that approach fails at step one. You haven't identified the event on a gross basis yet. The mitigating plan is irrelevant until you do.

The extant ISA 570 (Revised) left too much room for auditors to merge risk identification with mitigation. A team would see a loan covenant breach, note that management had a credible refinancing plan, and skip straight to concluding that no material uncertainty existed. The problem was not that the conclusion was wrong. It was that the working paper never recorded the breach as a going concern event in its own right. If the refinancing fell through after the audit report date, there was no documentation trail showing the auditor had identified the underlying risk.

ISA 570 (Revised 2024) addresses this by requiring a structured separation between identification and evaluation. The IAASB released the final standard in April 2025, with an effective date for periods beginning on or after 15 December 2026. For calendar year-end clients, that means the 2027 audit is the first engagement under the new framework.

The revised standard also responds to COVID-era criticism. During the pandemic, entities failed without any going concern modification in the prior year's audit report. Regulators questioned whether auditors had identified the underlying events and conditions, or whether they had accepted management's assurances too early in the process. The gross-basis requirement is a direct response to that criticism.

Early adoption is permitted. The IAASB encourages jurisdictions to adopt ISA 570 (Revised 2024) and ISA 240 (Revised) as a package, recognising that fraud and financial distress are often interrelated.

Gross-basis identification: the two-step process

This is the most significant procedural change. Under the extant standard, the auditor considered whether events or conditions existed that may cast significant doubt on going concern, and there was no explicit prohibition on factoring in management's plans during that consideration. Many teams did both simultaneously.

ISA 570 (Revised 2024) separates the process into two distinct stages.

Stage one: the auditor identifies events and conditions on a gross basis. This means before considering any mitigating factors included in management's plans for future actions. A maturing loan is a going concern event regardless of whether management intends to refinance. Declining revenue for four consecutive quarters is a going concern condition regardless of whether management plans to cut costs. The identification happens without reference to what management intends to do about it.

Stage two: only after identification does the auditor evaluate management's plans. Are the plans feasible? Are the underlying assumptions reasonable? Is there supporting evidence (a signed term sheet, a binding letter of intent, a confirmed order book)? The mitigation analysis belongs here, and only after stage one is complete and documented.

Why does the separation matter? Because it forces the working paper to contain two distinct sections. The first section lists every identified event and condition on a gross basis. The second section evaluates whether management's response to each event or condition is adequate. If the refinancing falls through after the audit report date, the file shows that the auditor identified the risk. Without the separation, the file may show nothing, because the event was never recorded independently of the plan.

Extended assessment period: twelve months from approval date

The extant ISA 570 (Revised) required the auditor to cover at least twelve months from the date of the financial statements. ISA 570 (Revised 2024) changes the starting point to the date of approval of the financial statements (as defined in ISA 560).

This is a longer period. For a Dutch entity with a 31 December 2027 year-end that approves its financial statements on 15 April 2028, the assessment period under the extant standard ran to 31 December 2028. Under the revised standard, it runs to at least 15 April 2029. That's an additional three and a half months.

The practical impact hits at planning and completion. At planning, you need to understand the entity's expected approval timeline to calculate the assessment period. At completion, any new information about events or conditions within the extended window must be considered before signing the auditor's report. If a significant loan maturity falls between 1 January 2029 and 15 April 2029, the extant standard would not have required it in the assessment. The revised standard does.

If management's going concern assessment covers less than twelve months from the approval date, ISA 570 (Revised 2024) paragraph 21 requires the auditor to request management to extend the period. If management refuses, paragraph 22 requires the auditor to determine the implications for the audit. Those implications may include a qualified or adverse opinion.

Evaluating management's assessment on every engagement

Under the extant standard, the depth of the auditor's evaluation varied. If no events or conditions were identified, the evaluation of management's assessment could be relatively light. ISA 570 (Revised 2024) removes that optionality.

The revised standard requires the auditor to evaluate management's assessment on every audit, regardless of whether events or conditions are identified. Even for a profitable, cash-rich entity with no indicators of financial distress, the auditor must evaluate the method, significant assumptions, and data used by management in forming its assessment. The auditor must also consider the potential for management bias.

This has documentation consequences. A going concern working paper that says "no events or conditions identified, no further procedures performed" no longer satisfies the standard. At minimum, the file must contain evidence that management prepared an assessment, that the auditor evaluated the method and assumptions, and that the auditor considered whether management's judgments indicate potential bias.

For smaller entities where the going concern assessment historically consisted of a brief management representation, this is a step change. The auditor cannot simply rely on a representation letter paragraph stating that the entity is a going concern. The auditor must see the analysis behind that statement and evaluate it.

New auditor's report content for going concern

ISA 570 (Revised 2024) introduces mandatory going concern content in the auditor's report for every audit, not just when a material uncertainty exists.

Under the extant standard, the auditor's report included going concern information only when a material uncertainty existed (the "Material Uncertainty Related to Going Concern" section) or when the auditor disagreed with management's use of the going concern basis. For the vast majority of audits where no material uncertainty existed, the auditor's report said nothing about going concern.

Under the revised standard, every auditor's report must include two explicit conclusions: one on whether management's use of the going concern basis of accounting is appropriate, and one on whether a material uncertainty related to going concern exists. For listed entities, additional content is required, including a description of how the auditor evaluated management's assessment.

The IAASB emphasised that these conclusions are not opinions on discrete matters. They are statements within the overall audit opinion. Accompanying context must clarify that the conclusions do not constitute a guarantee as to the entity's ability to continue as a going concern. For firms producing audit reports using standard templates, this means the template must be updated to include the new going concern section. Reports signed under the revised standard that lack this content will be non-compliant.

Worked example: Müller Fertigung GmbH

Client profile: Müller Fertigung GmbH, a German mid-market precision parts manufacturer with €54M revenue. 145 employees. Calendar year-end. Financial statements approved on 28 March 2028. Audit year: 2027 (first year under ISA 570 Revised 2024).

Gross-basis identification (stage one)

At planning, the team performs risk assessment procedures under ISA 315 (Revised 2019) with a going concern lens. Four events and conditions are identified on a gross basis, with no reference to management's plans:

Event A: A €6.2M syndicated credit facility matures on 30 September 2028 (within the assessment period, which runs to at least 28 March 2029).

Event B: The entity's largest customer (22% of revenue) notified Müller of a 40% volume reduction effective Q2 2028 due to a shift to a competing supplier.

Condition C: The current ratio dropped below 1.0 at year-end 2027, triggering a covenant review clause in a separate €3.1M revolving facility.

Condition D: Operating cash flow was negative in Q4 2027 for the first time in four years.

Documentation note: "Events and conditions identified on a gross basis per ISA 570 (Revised 2024). No mitigating factors or management plans considered at this stage. Events and conditions assessed individually and collectively for whether they may cast significant doubt on going concern."

Evaluation of management's plans (stage two)

Management presents its going concern assessment, covering twelve months from the expected approval date (28 March 2029). The assessment addresses each identified event and condition.

Event A: Management has a signed indicative term sheet from the existing lender for refinancing the €6.2M facility on substantially similar terms. Formal credit approval is expected by July 2028.

Documentation note: "Signed indicative term sheet obtained and inspected. Terms are substantially similar to existing facility. Credit approval pending. Risk: term sheet is non-binding. Audit response: confirmed with lender that the credit process is on track and that no material impediments to approval have been identified. Concluded: mitigating plan is feasible but not yet confirmed."

Event B: Management has secured two new customers to offset the volume loss, with signed supply contracts commencing Q3 2028 totalling approximately €4.8M annualised (versus €4.7M lost from the volume reduction).

Documentation note: "Supply contracts inspected. Annualised replacement revenue of €4.8M exceeds lost revenue of €4.7M. However, the new contracts ramp up over six months. Q2–Q3 2028 will see a revenue shortfall of approximately €1.2M during the transition period. Cash flow forecast updated by management to reflect the ramp-up lag. Concluded: mitigating plan is credible but introduces short-term cash flow pressure."

Condition C: Management received a waiver from the revolving facility lender for the covenant breach, valid through 30 June 2028. Covenant reset scheduled for Q3 2028.

Condition D: Management attributes the negative Q4 operating cash flow to a one-off investment in retooling for the new customer contracts. Q1 2028 cash flow forecast is positive.

Documentation note: "Waiver letter inspected. Valid through 30 June 2028. Covenant reset will be assessed against H1 2028 results. Negative Q4 cash flow is attributable to a specific capex outlay of €1.8M for retooling, supported by purchase orders. Q1 2028 cash flow forecast reviewed and appears reasonable given order book. Concluded: conditions are being addressed but resolution depends on H1 2028 trading performance."

Overall conclusion

Events and conditions exist that may cast significant doubt on going concern (specifically: the non-binding nature of the refinancing term sheet combined with the short-term cash flow gap during customer transition). Management's plans are feasible but depend on the refinancing closing and the new customer ramp-up proceeding to schedule. After evaluating management's plans, the team concludes that a material uncertainty does not exist because the mitigating factors are supported by documentary evidence, but the conclusion is marginal. Significant professional judgment is documented by the engagement partner.

Auditor's report content

Under ISA 570 (Revised 2024), the audit report includes the new mandatory going concern section with two explicit conclusions: (1) management's use of the going concern basis of accounting is appropriate, and (2) no material uncertainty related to going concern has been identified. It references the entity's disclosures about the credit facility refinancing and customer transition.

A reviewer would see a file with four gross-basis events and conditions, each evaluated separately against management's mitigating plans, with documentary evidence for each mitigation and a clearly documented overall conclusion.

Practical checklist

1. Restructure your going concern working paper into two distinct sections: gross-basis identification (stage one) and management plan evaluation (stage two). If your current template merges these steps, redesign it before the December 2026 effective date.
2. Calculate the revised assessment period for each engagement: twelve months from the expected date of financial statement approval, not from the year-end date. Add this calculation to your planning template. ISA 570 (Revised 2024) paragraph 21.
3. For every engagement (including those with no going concern indicators), document that you evaluated management's assessment, considered the method and assumptions used, and assessed potential management bias. ISA 570 (Revised 2024) requires this even when no events or conditions are identified.
4. Update your audit report template to include the new mandatory going concern section with two explicit conclusions. Reports issued under the revised standard without this section will be non-compliant.
5. If management's going concern assessment covers less than twelve months from the approval date, formally request an extension. Document the request and management's response. If management refuses, determine the implications for your opinion per ISA 570 (Revised 2024) paragraph 22.
6. Cross-reference your ISA 570 going concern file to your ISA 240 fraud risk assessment. The IAASB aligned both standards for a reason: fraud and financial distress are interrelated risks.

Common mistakes

• Insufficient challenge of management's assessment. The FRC's 2022–23 inspection cycle found going concern deficiencies in a significant proportion of non-Big 4 audit files, making it the most frequently flagged area. The revised standard's mandatory evaluation requirement on every engagement directly targets this deficiency.
• Merging identification with evaluation. Teams routinely identify events and conditions but immediately merge the identification with the evaluation of management's plans in a single working paper paragraph. Under the revised standard, the gross-basis identification must be documented separately and before the evaluation. Any working paper that combines both stages into one narrative risks a finding.
• Failing to adjust the assessment period. The shift from twelve months after the balance sheet date to twelve months after the approval date can add two to four months of forecast coverage. For entities with debt maturities or seasonal troughs falling in that window, missing the extended period is a documentation gap.

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Further reading and source references

• IAASB: ISA 570 (Revised 2024), Going Concern (approved April 2025, effective 15 December 2026).
• ISA 560, Subsequent Events: defines the date of approval of the financial statements referenced in the revised assessment period.
• ISA 315 (Revised 2019), Identifying and Assessing Risks of Material Misstatement: the risk assessment framework that feeds into the going concern identification stage.
• ISA 240 (Revised), The Auditor's Responsibilities Relating to Fraud: the companion standard sharing the same effective date, recognising fraud and financial distress are interrelated.
• FRC: 2022–23 Tier 2 and Tier 3 inspection findings on going concern.