Indicators
Check all indicators that apply to the entity. Severity levels reflect their weight under ISA 570.A2. Expand any indicator to see the working paper guidance and likely review challenge.
ISA 570 Going Concern Reference Card — free PDF
All 19 ISA 570 indicators with severity ratings, review challenges, and auditor response guidance. One page for your planning folder. Plus one practical audit insight per week.
No spam. Unsubscribe anytime.
Going Concern Assessment: Energy
Energy companies face going concern risks driven by commodity price volatility, capital-intensive operations, and the structural shift toward renewable energy. Upstream oil and gas entities are exposed to price cycles that can render reserves uneconomic, while utilities face regulatory and transition risks as energy markets decarbonise. The long-term nature of decommissioning obligations adds a unique dimension — these liabilities can exceed the entity's equity if asset values decline.
Key risk factors: Energy
Key energy sector going concern indicators include: commodity prices sustained below the entity's breakeven production cost, proved reserve depletion without adequate replacement through exploration or acquisition, decommissioning obligation funding shortfalls, regulatory changes that strand assets or reduce allowable returns, loss of key licences or concessions, and inability to fund the capital expenditure required for energy transition.
Commodity price sensitivity — model the entity's cash flows at current commodity prices, not at management's optimistic forecasts. Assess the breakeven oil/gas price and how long the entity can sustain operations below breakeven.
Reserve replacement ratio — if the entity is producing reserves faster than replacing them, this signals a finite operational life. Assess the remaining reserve life at current production rates.
Decommissioning obligations — these are often large and long-dated. Assess whether the entity has adequate financial provision or security (bonds, guarantees) to meet these obligations, particularly if asset values are declining.
Regulatory and licence risk — energy entities depend on government-granted licences and concessions. Changes in regulatory regime, environmental requirements, or carbon pricing can fundamentally alter the economics.
Energy transition exposure — assess the entity's strategy for the energy transition. Fossil fuel assets may face accelerated depreciation or impairment if they become stranded assets.
Hedging programme — energy companies often hedge future production. Assess the extent and tenor of the hedging programme — a well-hedged entity has protected near-term cash flows even if spot prices decline.
ISA 570.9 — The auditor shall evaluate management's assessment of the entity's ability to continue as a going concern.
ISA 570.A2 — Events or conditions that may cast significant doubt include financial, operating, and other indicators.
ISA 570.16 — If events or conditions have been identified, the auditor shall obtain sufficient appropriate audit evidence about whether a material uncertainty exists.