If there is substantial doubt about an entity's going concern, what should the auditor do?

When an auditor encounters substantial doubt about an entity's ability to continue as a going concern, it is essential for the auditor to evaluate the adequacy of disclosures made by management regarding the company's financial condition. The concept of going concern assumes that an entity will continue its operations for the foreseeable future, typically considered to be at least 12 months from the date of the financial statements.

In situations where there is uncertainty regarding the entity's ability to continue, the auditor's responsibility includes assessing whether management has appropriately disclosed these doubts in the financial statements. This involves examining the adequacy of the disclosures related to risks and uncertainties that may affect the entity's operations and financial performance. If management's disclosures are insufficient or absent, the auditor must consider how this impacts the fair presentation of the financial statements.

Proper disclosure is crucial as it informs users of the financial statements about potential risks that could affect the entity's operational viability. Addressing this issue promotes transparency and allows stakeholders to make informed decisions based on an accurate assessment of the entity's financial health. Therefore, the auditor’s focus on the adequacy of disclosure aligns with auditing standards and principles intended to protect the interests of financial statement users.