Going Concern

What is going concern?

Going concern is the foundational accounting assumption that an entity will remain in business for the foreseeable future. Financial statements are prepared on this basis unless management either intends to liquidate the entity or cease trading, or has no realistic alternative but to do so.

Under ISA 570, the auditor's responsibility is to obtain sufficient appropriate audit evidence about the appropriateness of management's use of the going concern assumption, and to conclude whether a material uncertainty exists that may cast significant doubt on the entity's ability to continue as a going concern. This is not a prediction of failure — it is an assessment of whether the basis on which the financial statements are prepared is valid.

The assessment period covers at least twelve months from the reporting date, but the auditor must also consider known events or conditions beyond that period. A debt maturity in month 14 with no refinancing plan, for example, is relevant even though it falls outside the minimum assessment window.

Why it matters in practice

Worked example: De Vries Maritime

De Vries Maritime BV is a mid-size shipping company. During the audit of the 2025 financial statements, the team identifies the following indicators:

• The entity has a net current liability position of EUR 4.2 million, up from EUR 1.8 million in the prior year.
• A EUR 12 million revolving credit facility expires in 8 months, and the bank has indicated it will only renew at significantly tighter covenants.
• Two major charter contracts (representing 35% of revenue) expire within 6 months with no confirmed renewals.
• The entity has negative operating cash flows for the second consecutive year.

Management prepares a cash flow forecast showing the entity can continue operating if the credit facility is renewed and at least one charter contract is extended. The audit team evaluates the assumptions: the renewal terms are not yet agreed, and the charter market has softened significantly. The team concludes that a material uncertainty related to going concern (MURGC) exists.

The financial statements include the required MURGC disclosure. The auditor's report includes a "Material Uncertainty Related to Going Concern" section referring to the disclosure. The audit opinion itself remains unmodified because the financial statements appropriately disclose the uncertainty.

What reviewers catch

Going concern is a high-priority area for regulatory inspections. Common findings include:

• Insufficient challenge of management's forecasts. The auditor accepted management's cash flow projections without testing the key assumptions (revenue growth rates, cost reductions, refinancing probability) or performing sensitivity analysis.
• Indicators present but not identified. The audit file contained evidence of going concern indicators (covenant breaches, losses, negative cash flows) but the going concern section of the file did not address them.
• Inadequate subsequent events procedures. The auditor did not extend going concern procedures to the date of the audit report, missing a post-year-end event (e.g., a failed refinancing or loss of a major customer) that changed the assessment.
• Reporting failures. A MURGC existed but the auditor's report did not include the required separate section, or the entity's financial statements did not include adequate disclosure.

Going concern vs MURGC

A going concern issue is any event or condition that may cast doubt on the entity's ability to continue operating. Many entities have going concern indicators — a net current liability position alone, for example, does not necessarily mean a MURGC exists.

A material uncertainty related to going concern (MURGC) is a higher threshold. It means the events or conditions, individually or collectively, may cast significant doubt on the entity's ability to continue as a going concern. When a MURGC exists, the consequences for both the financial statements and the audit report are specific and mandatory: the entity must disclose the nature of the uncertainty and its plans, and the auditor must include a dedicated section in the audit report.

The distinction matters because many entities operate with some level of going concern risk — seasonal businesses with tight cash flow windows, start-ups relying on funding rounds, or companies in cyclical industries. The auditor's job is to determine whether the risk rises to the level of a material uncertainty, not merely whether risk exists.

Key standard references

• ISA 570.10: Evaluating management's assessment of the entity's ability to continue as a going concern.
• ISA 570.16: Considering whether events or conditions exist that may cast significant doubt on going concern, and evaluating management's plans to address them.
• ISA 570.18–19: Concluding on whether a material uncertainty exists and the implications for the audit report.
• ISA 570.21–23: Reporting requirements when a MURGC exists, including the required sections in the audit report.
• IAS 1.25–26: The going concern assumption in the preparation of financial statements under IFRS.

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