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.
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Going Concern Assessment: Hospitality
Hospitality entities — hotels, restaurants, event venues, and tourism operators — are highly sensitive to economic cycles, seasonal demand patterns, and external disruptions (pandemics, travel restrictions, geopolitical events). The combination of high fixed costs (property, staff), perishable inventory (unsold room nights cannot be recovered), and seasonal cash flow concentration creates a business model where going concern risk can emerge rapidly.
Key risk factors: Hospitality
Key hospitality going concern indicators include: occupancy rates or average daily rates (ADR) falling below breakeven levels, inability to meet debt service obligations on property financing, seasonal cash flow shortfalls where the off-season burn rate exceeds available reserves or credit lines, franchise agreement non-compliance (brand standards, renovation requirements), loss of key contracts (corporate accounts, tour operator agreements), and escalating labour costs without corresponding rate increases.
Occupancy rate and RevPAR trends — compare to both the entity's breakeven occupancy and to competitive set (comp set) performance. Underperformance versus the market suggests entity-specific rather than market-wide problems.
Debt covenants on property financing — hospitality debt typically includes DSCR (debt service coverage ratio) and LTV covenants. Covenant breaches can trigger acceleration clauses that crystallise going concern risk.
Seasonal cash flow modelling — assess whether the entity's cash reserves or credit facilities are sufficient to cover the off-season operating deficit until peak season cash generation resumes.
Capital expenditure obligations — franchise agreements and brand standards may require periodic renovation (property improvement plans). Inability to fund these creates a risk of franchise termination.
Forward booking data — unlike other industries, hospitality has leading indicators in forward reservations. A significant decline in advance bookings signals future revenue shortfalls.
Labour market and staffing — hospitality relies on seasonal and part-time workers. Wage inflation, minimum wage increases, or inability to staff adequately directly impacts both cost structures and service quality.
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.