Going Concern Requires More Than Optimism
Management and boards need evidence-based forecasts, credible plans, and transparent disclosures.
Continuity must be supported by realistic assumptions and executable plans, not expectation alone.
Going concern assessments are sometimes approached as a technical disclosure prepared near the end of the financial reporting process. In uncertain operating conditions, they should instead form part of active management analysis and governance oversight.
Liquidity constraints, currency movements, customer concentration, disrupted supply chains, overdue liabilities, funding uncertainty, and limited access to finance may affect an organization’s ability to meet its obligations as they fall due.
These conditions do not automatically mean that the going concern basis is inappropriate. They do, however, require an entity-specific assessment supported by reliable information and reasonable assumptions.
Management Must Assess, Not Merely Assert
Management is responsible for assessing whether the going concern basis of accounting remains appropriate and whether material uncertainties require disclosure under the applicable financial reporting framework.
The assessment should be supported by evidence, which may include cash flow forecasts, debt repayment profiles, available facilities, contracted revenue, expected funding, cost-reduction plans, shareholder support, donor commitments, and operational contingencies.
A statement that management expects the organization to continue operating is not sufficient where significant adverse conditions exist.
The assessment should explain how the organization expects to manage those conditions and which assumptions are critical to the conclusion.
Forecasts Require Challenge
Forecasts should reflect reasonable and supportable assumptions rather than the outcome management hopes to achieve.
Boards and senior management should challenge projected revenue, collection periods, exchange rates, cost inflation, financing renewals, asset disposals, funding receipts, and the timing of planned actions.
Sensitivity analysis should consider credible downside scenarios. Management should assess what happens if sales are delayed, collections weaken, costs increase, funding is not renewed, or planned support is not received when expected.
Plans that depend on third parties should be distinguished from actions that are within management’s control.
Disclosure Is Part of the Response
Where events or conditions may cast significant doubt on the organization’s ability to continue as a going concern, the financial statements should provide clear and balanced disclosure as required by the applicable reporting framework.
The disclosure should explain the principal conditions, significant judgments, key assumptions, and management plans. Generic or highly optimistic wording may not enable users to understand the actual uncertainty.
ISA 570 (Revised 2024), effective for audits of periods beginning on or after 15 December 2026, strengthens the auditor’s risk assessment, evaluation of management’s assessment, communications, and transparency in reporting going concern matters.
Questions Governance Bodies Should Ask
Boards and audit committees should consider:
Which assumptions have the greatest effect on liquidity?
What financing or support is committed rather than expected?
How reliable is the forecast information?
What happens under plausible adverse scenarios?
Are management’s plans achievable within the required period?
Have subsequent events been reflected?
Are disclosures sufficiently specific and balanced?
Going concern is not only an accounting or audit issue. It is a forward-looking governance matter requiring timely information, critical challenge, realistic planning, and transparent communication.