Common AFM Findings on ISA 570 Going Concern

The four recurring deficiencies

In its Snapshot of the Sector 2022, the AFM identified fraud and going concern as two of four priority themes for supervision from 2023 onward. The FRC’s 2022–23 inspection report on Tier 2 and Tier 3 firms found going concern findings in 38% of inspected audits, all of which required improvements or significant improvements. Four categories of deficiency recur across both regulators’ reports.

Deficiency 1: accepting management’s cash flow forecasts without independent evaluation

ISA 570.16(b) requires the auditor to evaluate management’s assessment of the entity’s ability to continue as a going concern. In practice, this means testing the cash flow forecasts that underpin management’s conclusion.

The AFM’s thematic reviews have consistently found that auditors accept management’s base-case cash flow projections without performing independent sensitivity analysis. The auditor checks the arithmetic, confirms the model inputs tie to the trial balance, and signs off. That’s ISA 570.16(a) at best (inquiring of management). It isn’t 570.16(b) (evaluating the assessment).

The FRC’s Tier 2 and Tier 3 inspection report specifically identified “insufficient procedures to test cash flow forecasts and to assess the impact of related sensitivities in the going concern model” as a key finding. If management projects 5% revenue growth and you don’t model what happens at flat or declining revenue, you haven’t evaluated the assessment. You’ve audited a spreadsheet.

Deficiency 2: no independent stress test of the base case

ISA 570.16(b)(ii) requires the auditor to consider whether management’s assessment includes all relevant information of which the auditor is aware. In practice, inspectors expect to see the auditor’s own downside scenarios, not just a review of management’s scenarios.

The AFM has found that auditors on clients in sectors with volatile margins (construction, hospitality, retail) frequently rely on management’s single base-case model. The regulator’s expectation is that the auditor develops at least one independent stress scenario that tests the entity’s ability to continue as a going concern under reasonably possible adverse conditions. ISA 570.A4 gives examples of conditions that warrant this: recent loss of major customers, labour shortages, supply chain disruption, breach of covenant terms.

Deficiency 3: weak documentation of the auditor’s own conclusion

ISA 570.A28 (application material for documentation) notes that the documentation of the auditor’s work on going concern should include the conclusions reached. The AFM’s inspection findings show that many files document what procedures were performed but not why the auditor concluded that no material uncertainty existed.

The typical finding looks like this: the file contains management’s cash flow forecast, a memo noting that the forecast was reviewed, tick marks confirming inputs were traced, and a conclusion stating “no material uncertainty identified.” What’s missing is the auditor’s reasoning. Why did the auditor conclude that the going concern assumption was appropriate despite the entity’s declining cash conversion? What specific evidence supported the conclusion that management’s mitigation plans were feasible? ISA 230.8 requires documentation sufficient to enable an experienced auditor having no previous connection with the audit to understand the nature, timing, and extent of procedures performed, as well as the results and conclusions reached.

If the file doesn’t explain the reasoning, an inspector has no way to assess whether professional scepticism was applied. The absence of reasoning isn’t a documentation failure. It’s an evidence failure.

Deficiency 4: failure to challenge in “close call” situations

The most damaging finding, and the one most likely to generate enforcement action. ISA 570.18 requires the auditor to evaluate whether the events or conditions identified, individually or collectively, cast significant doubt on the entity’s ability to continue as a going concern. When the answer is a “close call” (the entity will probably survive, but a material uncertainty arguably exists), the auditor must exercise judgment and document that judgment with specificity.

The FRC’s 2022–23 report found that audit teams on financially distressed entities accepted management’s going concern assessments without sufficient challenge. In one example cited by the FRC, the audit team accepted management’s assessment even though the entity had breached loan covenants during the reporting period. The question that should have been asked (and documented): does the covenant breach, combined with the entity’s reliance on the lender’s continued forbearance, constitute a material uncertainty under ISA 570.18?

ISA 570 (Revised 2024), effective for periods beginning on or after 15 December 2026, addresses this problem directly. The revised standard requires the auditor to evaluate events and conditions on a “gross basis” before considering management’s mitigating plans. Under the current standard, many auditors evaluate events and conditions alongside mitigation simultaneously. The revised standard separates those steps.

Why these deficiencies persist

The four deficiencies listed above appeared in AFM, FRC, and PCAOB reports in 2017. They appeared again in 2019. They appeared again in 2023. The question isn’t what inspectors find. It’s why firms keep producing files that fail the same tests.

Two structural factors drive the persistence.

Time pressure on going concern work. Going concern sits at the end of the audit timeline. By the time the audit team reaches the ISA 570 evaluation, fieldwork is substantially complete, the opinion date is approaching, and the partner review is scheduled. The incentive structure rewards moving quickly through the going concern section, not spending two additional days building an independent stress-test model.

The “no-event” bias. On most audits, the entity survives the period. Management’s base-case forecast turns out to be roughly correct. The going concern section of the file generates no findings in internal quality reviews because the entity is still operating when the review happens. This creates a feedback loop: teams invest less time in going concern work because past going concern work was never questioned. When an inspector selects the file for review, the underinvestment becomes visible.

Neither factor is a legitimate reason for the deficiency. Both are honest explanations of why the deficiency keeps recurring. Audit firms that want to close this gap need to address the incentive structure (allocating dedicated time for ISA 570 work before the opinion date) and the review structure (ensuring hot reviews cover going concern before sign-off, not only at completion).

What inspectors actually look for in the file

An inspector reviewing your ISA 570 working papers will check six things.

1. Does the file contain management’s going concern assessment? Not a verbal representation. A written assessment with supporting cash flow forecasts, covering at least twelve months from the date the financial statements are authorised for issue (ISA 570.13).
2. Did the auditor evaluate (not just review) the cash flow forecasts? The inspector will look for evidence that assumptions were challenged, not just verified against the trial balance. Revenue growth rates, collection periods, cost assumptions, capital expenditure timing.
3. Did the auditor perform independent sensitivity analysis? The inspector wants to see what happens when the base case breaks. At least one scenario that models a plausible adverse outcome.
4. Did the auditor document their own conclusion with reasoning? Not a template phrase. A specific explanation of why the auditor concluded that no material uncertainty exists, or why a material uncertainty does exist, with reference to the evidence obtained.
5. Did the auditor consider disclosure adequacy? Even if no material uncertainty exists, ISA 570.19 requires the auditor to evaluate whether the financial statements include adequate disclosure about going concern.
6. Did the auditor communicate with those charged with governance? ISA 570.25 requires the auditor to communicate with the audit committee (or equivalent) about events or conditions identified and the auditor’s conclusions.

Worked example: rebuilding a going concern file after an inspection finding

Bakker Vastgoed B.V. is a Dutch commercial property management company with €42M revenue, €6.8M in bank debt (€3.2M maturing in eight months), occupancy rates that dropped from 91% to 84% over the past two years, and a debt covenant requiring minimum occupancy of 80%. The AFM inspected the 2024 audit file and raised a finding on going concern: “Insufficient procedures to evaluate management’s cash flow forecasts and to assess the impact of related sensitivities.” You are rebuilding the working paper for the 2025 audit.

1. Obtain and document management’s written assessment (ISA 570.13)

Request a board-approved going concern paper with cash flow forecasts through at least March 2027 (twelve months from anticipated audit report date). Confirm the paper addresses the occupancy decline, covenant proximity, and the €3.2M debt maturity.

2. Evaluate management’s base-case assumptions (ISA 570.16(b))

Management projects occupancy recovering to 87% by year-end based on two signed letters of intent from prospective tenants. Test this assumption by obtaining the signed letters, confirming the expected lease commencement dates, and assessing the credit quality of the prospective tenants. Compare the projected 87% occupancy to the two-year declining trend (91% to 84%).

3. Build an independent downside scenario (ISA 570.16(b)(ii))

Model a scenario where occupancy remains at 84% (current level, no recovery) and the €3.2M debt cannot be refinanced on current terms. Under this scenario, does Bakker Vastgoed breach the 80% covenant? Can it service the debt? Does it have sufficient liquidity to operate for twelve months?

4. Document your conclusion with specific reasoning (ISA 230.8)

State your conclusion: “Based on the evaluation of management’s base-case forecast, the independent stress test performed, the status of the debt refinancing discussions, and the proximity to the covenant threshold, I conclude that [material uncertainty exists / no material uncertainty exists] because [specific reasoning with reference to the evidence obtained].”

Practical checklist

1. Request management’s written going concern assessment at least four weeks before the planned opinion date. If management does not provide a written assessment, record the absence and explain how you obtained sufficient evidence to evaluate going concern without it (ISA 570.13).
2. Prepare at least one independent downside scenario for every engagement where the entity has any ISA 570.A3 indicator (declining revenue, covenant proximity, key customer loss, refinancing needs within twelve months). File the model separately from management’s documents.
3. Write your ISA 570 conclusion as a paragraph of reasoning, not a tick box. Explain why you reached your conclusion with reference to the specific evidence.
4. If you classify the situation as a “close call” (indicators exist but you conclude no material uncertainty), document the close call explicitly. Record which factors tipped your conclusion and what would have changed it.
5. Communicate your going concern conclusions to the audit committee before the audit report is signed (ISA 570.25). File a copy of the communication.
6. Review your ISA 570 working papers against the six items inspectors check (listed above) before the partner signs the opinion.

Common mistakes

• The FRC’s 2022–23 Tier 2 and Tier 3 inspection report found going concern deficiencies in 38% of inspected audits. The most common finding was insufficient procedures to test cash flow forecasts, particularly the failure to assess the impact of sensitivities on the going concern model (ISA 570.16(b)).
• The AFM identified in its 2022 Snapshot of the Sector that going concern is one of four priority supervision themes from 2023 onward, alongside fraud, sustainability reporting, and market structure. Both PIE and non-PIE firms consult on going concern as one of the most common consultation topics.
• PCAOB inspection staff continue to select audits with going concern challenges for review. The PCAOB’s 2024 inspection spotlight noted a continuing focus on going concern evaluation, particularly in audits where the entity faced financial distress but received an unmodified opinion.

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Frequently asked questions

Source references

• AFM, Snapshot of the Sector 2022
• AFM, 2025 State of the Industry report
• FRC, 2022–23 Inspection Report on Tier 2 and Tier 3 Firms
• PCAOB, 2024 Aggregate Inspection Results
• ISA 570 (Revised), Going Concern
• ISA 570 (Revised 2024), effective 15 December 2026
• ISA 230, Audit Documentation