Going Concern Indicators: The ISA 570 Assessment Workflow

Three weeks before sign-off, the client's bank calls in a covenant waiver request. The current ratio dropped below 1.0 for the second consecutive quarter. Your going concern section has "no indicators identified" from planning. That sentence is now wrong, and the fix takes more than crossing it out.

Under ISA 570, the auditor evaluates whether events or conditions exist that cast significant doubt on the entity's ability to continue as a going concern for at least twelve months from the reporting date, assesses the adequacy of management's analysis, evaluates management's plans to mitigate those events or conditions, and determines the effect on the auditor's report (ISA 570.10-11, ISA 570.16-19).

Table of contents

1. The auditor's responsibilities under ISA 570.10-11
2. Financial indicators
3. Operating indicators
4. Other indicators
5. Evaluating management's assessment (ISA 570.16-17)
6. Additional procedures when indicators exist (ISA 570.18-19)
7. The period of assessment
8. Worked example: Voskamp Engineering B.V.
9. Practical checklist
10. Common mistakes
11. Related content

For a structured going concern assessment with severity-weighted indicators, the ciferi ISA 570 going concern checklist walks through each category of indicator, scores severity, and documents management's mitigating factors with the required audit procedures at each stage.

The auditor's responsibilities under ISA 570.10-11

ISA 570.10 requires the auditor to consider whether events or conditions exist that may cast significant doubt on the entity's ability to continue as a going concern. This is not a one-time assessment at planning. ISA 570.11 requires the auditor to remain alert throughout the audit to evidence of such events or conditions.

The going concern assessment is continuous. Information obtained during any phase of the audit (a major customer loss discovered during revenue testing, a covenant breach identified during bank confirmation procedures, a legal claim revealed during the subsequent events review) can trigger or change the going concern conclusion. A file that says "no indicators at planning" and never revisits the question fails ISA 570.11.

The assessment requires professional judgment about the future, which makes it inherently uncertain. But the standard does not require the auditor to predict whether the entity will survive. It requires the auditor to identify the events and conditions, evaluate management's assessment of those events and conditions, and conclude on whether significant doubt exists and how it affects the report.

Financial indicators

ISA 570.A3 provides examples of events and conditions that may indicate going concern doubt. The financial indicators are the most quantifiable.

Net liability or net current liability position means the entity's liabilities exceed its assets (or current liabilities exceed current assets). A single-period net liability position is not automatic evidence of going concern doubt. Recurring net liability positions, or a deteriorating trend over two or more periods, are stronger indicators.

Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment. Check the maturity schedule. If €3M of bank debt matures in eight months and the entity has €400K of cash with no committed refinancing facility, the indicator is present.

Adverse key financial ratios. Interest cover below 1.5x, debt-to-equity above 3.0x for a non-financial entity, or negative operating cash flow for two consecutive years all warrant evaluation. But ratios alone don't determine going concern doubt. Context matters. A seasonal business with negative cash flow in Q1 is different from a structurally loss-making entity.

Inability to pay creditors on due dates. Ageing analysis showing a significant increase in overdue payables (30+ days beyond terms) is an indicator. Supplier correspondence demanding payment, statutory demands, or winding-up petitions are more severe.

Substantial operating losses or significant deterioration in the value of assets used to generate cash flows round out the financial category. Auditors should quantify these: "operating loss of €1.4M, representing 8% of revenue and the third consecutive loss-making year" is more useful to a reviewer than "the entity has been loss-making."

Operating indicators

Operating indicators are harder to quantify but can be more decisive than financial ones.

Loss of key management without replacement. If the entity's commercial director (who manages the two largest customer relationships) resigned in November with no successor identified by the reporting date, the entity's ability to retain those customers is uncertain. Quantify the revenue concentration: if those two customers represent 45% of revenue, the indicator is material.

Loss of a major market, key customer, franchise, licence, or principal supplier. Any single event that removes more than 15-20% of revenue or a critical input to the production process warrants going concern consideration. The threshold is not codified, but inspection experience suggests that regulators expect auditors to flag customer or supplier concentrations above this level.

Labour difficulties or shortages of important supplies. For manufacturing entities dependent on specific raw materials, supply chain disruption can threaten continuity. Document the specific supply risk, the entity's alternative sources, and the financial impact of disruption.

Emergence of a successful competitor. This indicator is the weakest on its own because competitive pressure is permanent. It belongs in the assessment only when a specific competitive event (a competitor's entry into the entity's only market, a price war that has already reduced margins by 300+ basis points) threatens viability within the assessment period.

The interaction between operating indicators matters more than any single indicator in isolation. A key management departure combined with the loss of a major customer and a pending covenant breach produces a different risk profile than any one of those events alone. When two or more operating indicators are present, auditors should document whether they are connected (the commercial director left because the major customer was already pulling back) or independent (coincidental timing). Connected indicators suggest a deeper structural problem that management's mitigation plan must address at the root cause, not symptom by symptom.

Other indicators

ISA 570.A4 adds indicators outside the financial and operating categories.

Non-compliance with capital or other statutory requirements. For Dutch B.V. entities, non-compliance with the statutory minimum equity requirement, failure to file annual accounts within the statutory deadline, or breach of licence conditions can all trigger going concern doubt. The severity depends on the regulatory consequences.

Pending legal or regulatory proceedings that, if successful, could result in claims the entity cannot satisfy. Quantify the potential liability against the entity's resources. A claim for €5M against an entity with net assets of €3M and no insurance is a going concern indicator even if the claim is contested.

Changes in legislation or government policy expected to affect the entity adversely. For entities dependent on government contracts, subsidies, or regulated pricing, a policy change can remove the economic basis for the business.

Uninsured or underinsured catastrophes. If the entity suffered a fire, flood, or cyberattack with losses exceeding insurance coverage, the financial impact may threaten continuity.

The ciferi ISA 570 going concern checklist weights each indicator by severity (low, medium, high, critical) and aggregates the weighted scores to produce an overall risk assessment. Indicators scored as "critical" trigger mandatory additional procedures regardless of the aggregate score.

Evaluating management's assessment (ISA 570.16-17)

ISA 570.16 requires the auditor to evaluate management's assessment of the entity's ability to continue as a going concern. Management must make this assessment under IAS 1.25-26 (for IFRS reporters) covering a period of at least twelve months from the reporting date.

The auditor's evaluation under ISA 570.16 covers whether management's assessment addresses the same period (at least twelve months from the reporting date, not twelve months from the date of management's assessment), whether management has identified relevant events and conditions, and whether management's plans to deal with those events and conditions are feasible.

ISA 570.17 requires the auditor to inquire of management whether they are aware of events or conditions beyond the assessment period that may cast significant doubt on going concern. This forward-looking inquiry extends the auditor's consideration beyond the twelve-month minimum.

When evaluating management's plans, auditors apply a feasibility test. If management's plan to address a going concern indicator is "we will secure new financing," the auditor needs evidence that the financing is probable: a signed term sheet, an approved facility, or at minimum a letter of intent from a creditworthy lender. A statement of intent without corroborating evidence does not pass the feasibility test.

Compare the assumptions in management's going concern assessment to those used in other areas of the file. If the cash flow forecast supporting going concern shows revenue growth of 10% while the revenue budget (used for analytical procedures) shows 3%, the inconsistency needs to be resolved.

Additional procedures when indicators exist (ISA 570.18-19)

When events or conditions have been identified, ISA 570.18 requires the auditor to obtain sufficient appropriate audit evidence to determine whether a material uncertainty exists. ISA 570.19 lists specific procedures.

The auditor must request management to make its assessment if it has not already done so (ISA 570.19(a)). Many smaller entities do not prepare a formal going concern assessment unless the auditor asks. The request itself is a mandatory procedure, not optional.

Evaluate management's plans for future actions in relation to the going concern assessment. This means testing the feasibility and likely outcome of each mitigating action. If management plans to sell a property to raise cash, verify that the property is on the market, obtain an independent valuation, and assess whether the sale can complete within the required timeframe.

Where the entity has prepared a cash flow forecast, evaluate the reliability of the underlying data and determine whether there is adequate support for the assumptions (ISA 570.19(b)). This is the most time-consuming procedure. It requires the auditor to test the forecast inputs (revenue, costs, timing of receipts and payments, capex, debt service) against historical accuracy, contractual commitments, and external evidence.

Consider whether any additional facts or information have become available since management made its assessment (ISA 570.19(c)). Post-balance sheet events (loss of a contract, deterioration in market conditions, failure to secure refinancing) can change the conclusion.

Request written representations from management regarding their plans for future action and the feasibility of those plans (ISA 570.19(d)). These representations supplement but do not replace audit evidence.

The period of assessment

The minimum period is twelve months from the reporting date. For a 31 December 2025 year-end, the assessment covers at least until 31 December 2026. IAS 1.26 encourages (but does not require) entities to consider events beyond twelve months.

Auditors should be alert to events that occur just beyond the twelve-month window but have implications within it. A €5M bond repayment due on 15 January 2027 (thirteen months after the reporting date) may affect the entity's liquidity planning within the twelve-month period if the entity needs to accumulate cash or arrange refinancing before the maturity date.

The date of the auditor's report also matters. ISA 570.A1 notes that the assessment period runs from the date of the financial statements, not the date of the auditor's report. If the audit report is signed on 15 April 2026, the going concern assessment still covers at least until 31 December 2026 (twelve months from the reporting date of 31 December 2025). But subsequent events between the reporting date and the audit report date that indicate going concern doubt must be considered under ISA 560.

A practical complication arises when the entity's year-end is not 31 December. For a 30 June 2025 year-end with the audit report signed on 15 October 2025, the assessment period runs to at least 30 June 2026. The auditor must consider information available up to the audit report date (15 October 2025) about events and conditions through 30 June 2026. Events occurring between 15 October 2025 and 30 June 2026 cannot be known at the report date, which is why management's assessment relies on forecasts and the auditor tests the reasonableness of those forecasts rather than waiting for actual outcomes.

For group audits, the going concern assessment period must be consistent across the group. If the parent has a 31 December year-end and a subsidiary has a 30 September year-end with aligned reporting, the group auditor must ensure the subsidiary's going concern assessment covers the same period as the parent's (at least twelve months from 31 December). Component auditors working on the subsidiary should be instructed accordingly.

Worked example: Voskamp Engineering B.V.

Voskamp Engineering B.V. is a Dutch precision engineering company with €28M revenue and €1.9M pre-tax profit in the current year. Net assets are €6.2M. The entity has a €4M revolving credit facility maturing on 30 September 2026 (nine months after the 31 December 2025 reporting date). Performance materiality is €280,000.

1. The auditor identifies going concern indicators during the engagement. The bank notified Voskamp in November 2025 that the revolving credit facility will be subject to enhanced covenants on renewal, including a minimum interest cover ratio of 3.0x. Voskamp's current interest cover is 2.4x. The entity also lost its second-largest customer (representing 18% of revenue, or approximately €5M) in January 2026, effective from Q2 2026.

   Documentation note: "Two indicators identified. (1) Financial: RCF of €4M matures 30 September 2026, bank indicated enhanced covenants on renewal. Current interest cover 2.4x vs required 3.0x, covenant breach likely without mitigating actions. (2) Operating: loss of customer Brinkman Staalbouw (18% of revenue, c. €5M) confirmed January 2026. Both indicators present within the twelve-month assessment period."

2. The auditor evaluates management's assessment. Management prepared a cash flow forecast for the twelve months to 31 December 2026. The forecast assumes: replacement of €3M of lost revenue through new contracts (pipeline valued at €4.2M, two contracts signed for €1.8M, one at advanced negotiation for €1.4M), cost reductions of €600,000 through headcount reduction (already implemented, 8 employees made redundant in February 2026), and successful renewal of the RCF on revised terms.

   Documentation note: "Management's forecast reviewed. Revenue replacement: €1.8M contracted (inspected signed contracts), €1.4M at advanced negotiation (confirmed with sales director and inspected correspondence with customer). Remaining €0.8M from pipeline, not yet contracted, assessed as uncertain. Cost reductions: €600K confirmed, redundancy letters inspected, payroll savings calculated from February start date. RCF renewal: bank indicated willingness to renew subject to covenants. No signed term sheet at audit report date."

3. The auditor assesses whether a material uncertainty exists. Under the base case (all revenue replacement materialises and RCF is renewed), the entity continues. Under stress (only contracted revenue of €1.8M replaces lost revenue, no RCF renewal), the entity faces a cash shortfall of approximately €1.6M by Q4 2026. The RCF renewal is the critical variable. Without it, the entity cannot meet its obligations.

   Documentation note: "Base case: adequate liquidity, interest cover improves to 2.9x by September 2026 (close to 3.0x covenant). Stress case: cash shortfall of €1.6M by October 2026. Material uncertainty exists. Outcome depends on RCF renewal, which is not yet confirmed. ISA 570 material uncertainty disclosure required. Going concern basis of preparation remains appropriate; management's base case is realistic but subject to significant uncertainty."

4. The auditor concludes on the auditor's report. A material uncertainty related to going concern exists. The financial statements are prepared on the going concern basis (appropriate), and the going concern disclosure in the notes is adequate. The auditor's report will include a "Material Uncertainty Related to Going Concern" section per ISA 570.22.

   Documentation note: "Report modification: Material Uncertainty Related to Going Concern section included. Cross-referenced to Note [X] in the financial statements. Conclusion: going concern basis appropriate, material uncertainty adequately disclosed, no modification to the opinion required beyond the going concern section."

Practical checklist

1. At planning, screen all three categories of indicators (financial, operating, other) using the ISA 570 going concern checklist. Document the screening even when no indicators are present (ISA 570.10).

2. Review the maturity schedule for all borrowings falling due within fifteen months of the reporting date. For any material debt maturing without committed refinancing, flag the indicator and request management's plan.

3. Evaluate management's cash flow forecast for at least twelve months from the reporting date. Test revenue assumptions against contracted income, historical conversion rates for pipeline, and post-year-end trading results.

4. Cross-check going concern assumptions to other areas of the file: revenue budgets (analytical procedures), profit projections (DTA recoverability under IAS 12), impairment models (IAS 36). Inconsistencies between these forecasts must be resolved and documented.

5. If indicators are present, obtain written representations from management on their plans and the feasibility of those plans (ISA 570.19(d)). Representations do not replace evidence but their absence is a scope limitation.

6. Document the going concern conclusion at completion, not only at planning. ISA 570.11 requires the auditor to remain alert throughout the audit. A planning-only assessment with no update at completion fails the standard.

Common mistakes

• Concluding "no going concern doubt" at planning and never updating the conclusion. The FRC's inspection cycle found that 38% of files with going concern deficiencies had a planning-stage assessment with no evidence of revisiting it at completion, even where subsequent information (customer losses, covenant breaches, deteriorating cash positions) had emerged during fieldwork.

• Accepting management's plans without testing feasibility. A plan to "secure additional financing" is not a mitigating factor without evidence that a lender has been approached and has indicated willingness to lend. ISA 570.19 requires the auditor to evaluate the feasibility and likely effectiveness of management's plans.

• Not extending the assessment period to cover debt maturities just beyond twelve months. A bond repayment in month thirteen affects liquidity planning within the twelve-month period. The auditor should consider the full picture, not just the arithmetic of the twelve-month cut-off.

Related content

• Going concern glossary entry. Covers the ISA 570 and IAS 1 definitions, the assessment period, and the types of audit report modification.
• ISA 570 going concern checklist. The severity-weighted indicator checklist referenced in this post, with separate sections for financial, operating, and other indicators.
• ISA 520 analytical procedures: setting expectations and investigating variances. Relevant because deteriorating ratios identified during analytical procedures often surface the first going concern indicators.