# Going Concern and the Management Representation Letter

> What a going-concern assessment obliges a Malaysian board to document, what a Material Uncertainty Related to Going Concern section does to banking covenants, and why the representation letter is audit evidence rather than a formality.

- Category: audit
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/audit/going-concern-audit

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Two documents get signed at the end of a Malaysian audit without being read: the
going concern assessment and the representation letter. Both are the board's own
statements, both are evidence, and both are the first things anyone looks at when
the company later fails.

## What the board has to document

Under paragraph 13 of ISA 570 (Revised), the auditor evaluates management's
assessment over the same period management used — and where that assessment covers
**less than twelve months from the date of the financial statements**, the auditor
must request management to extend it to at least twelve months. Paragraph 15 adds
an enquiry about events **beyond** that period.

Where events or conditions cast significant doubt, paragraph 16 requires the
auditor to evaluate management's plans for future actions, whether their outcome is
likely to improve the situation, and whether they are feasible. Where a cash flow
forecast is a significant factor, the auditor evaluates the reliability of the
underlying data and whether there is adequate support for the assumptions.

That is a specification for a board paper. It needs the forecast, the assumptions
written down, the mitigating actions, and evidence they are real — a signed facility
letter rather than an expectation of renewal, a shareholder support letter rather
than an intention.

Net current liabilities, recurring losses, breached covenants, a facility maturing
inside the assessment period or dependence on a single customer all put you here.

## The four reporting outcomes

| Situation | Opinion | Report |
| --- | --- | --- |
| Going concern basis appropriate, no material uncertainty | Unmodified | Nothing added |
| Material uncertainty exists, disclosure adequate | **Unmodified** | Separate section headed **Material Uncertainty Related to Going Concern** |
| Material uncertainty exists, disclosure inadequate | **Qualified or adverse** | Stated in the Basis for Opinion section |
| Going concern basis inappropriate | **Adverse** | Paragraph 21 |

The second row is the one people misread. Paragraph 22 requires an unmodified
opinion, and the section itself says so: *our opinion is not modified in respect of
this matter*. It is not a qualification, and describing it as one on a credit
application is a mistake in your own favour that will be corrected.

## What it does commercially

The clean opinion does not stop the section from being read. In Malaysian practice,
a Material Uncertainty section triggers a facility review, tighter reporting
conditions, and questions about the forecast that produced it. Where a covenant is
already tight, the disclosure required by paragraph 19(b) — that the company **may
be unable to realise its assets and discharge its liabilities in the normal course
of business** — is a sentence a credit committee reacts to.

The way to control that is to have the mitigation documented and funded before the
report is drafted, not to argue for weaker disclosure. Weakening the disclosure
moves you to row three, which is a qualification.

## The representation letter is evidence

ISA 580 requires two representations in every engagement: that management has
fulfilled its responsibility for preparing the financial statements, and that it
has provided the auditor with all relevant information and access, with all
transactions recorded. Where going concern is in play, paragraph 16(e) of ISA 570
(Revised) adds written representations about the plans and their feasibility.

Three mechanics matter:

- **Form.** A letter on the company's letterhead, addressed to the auditor
  (paragraph 15).
- **Date.** As near as practicable to, but **not after**, the date of the auditor's
  report (paragraph 14).
- **Refusal.** Paragraph 20 requires the auditor to **disclaim an opinion** if the
  mandatory representations are not given, or if doubt about management's integrity
  makes them unreliable.

Paragraph 17 adds the point that catches directors out: where a representation is
inconsistent with other audit evidence, the auditor must try to resolve it, and if
it cannot be resolved, reconsider management's integrity. A letter saying all
transactions were disclosed, signed by someone who knew of an undisclosed
related-party arrangement, is not a formality that went wrong. It is a written
statement on the audit file.

## Common mistakes

- **Treating a Material Uncertainty section as a qualified opinion.** It is an
  unmodified opinion.
- **Running the assessment for twelve months from the board meeting** rather than
  from the date of the financial statements.
- **Relying on undocumented support.** An expectation of renewal is not evidence.
- **Letting the auditor draft the going concern paper**, which removes the one
  thing that makes it the board's assessment.
- **Signing the representation letter unread**, or backdating it after the
  auditor's report.

## What's next

Where the outcome does move the opinion, it is worth understanding the two-axis
test that decides which of the four opinions you get.

## Sources

- ISA 570 (Revised), Going Concern — https://mia.org.my/box/2022/04/ISA_570_Revised.pdf (MIA)
- ISA 580, Written Representations — https://mia.org.my/box/2022/04/ISA_580.pdf (MIA)
- AAPG 1 — Auditors report on financial statements prepared in accordance with the MFRS framework and Companies Act 2016 — https://mia.org.my/wp-content/uploads/2022/06/MIA_Audit_and_Assurance_Practice_Guide_AAPG_1-1.pdf (MIA)

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