What is material uncertainty related to going concern?
The threshold sits between two points. Below it, events or conditions exist that may cast significant doubt on the entity's future, but management's plans are feasible and the uncertainty is not material to users' decisions. Above it, the doubt is significant enough that users need to know about it to make informed decisions based on the financial statements.
ISA 570.17 requires the auditor to determine whether material uncertainty exists after evaluating management's assessment and any mitigating plans. The evaluation is binary: material uncertainty either exists or it does not. There is no "close call" category in the standard, though ISA 570 (Revised 2024) paragraph A73 acknowledges that significant judgement may be required in borderline cases.
When material uncertainty exists and the entity discloses it adequately, the auditor includes a "Material Uncertainty Related to Going Concern" section in the report under ISA 570 (Revised 2024) paragraph 30. The opinion itself remains unmodified. When the entity does not disclose it adequately, the auditor expresses a qualified or adverse opinion under paragraph 36. Under the revised standard, the auditor must also include an explicit statement confirming whether material uncertainty exists or does not exist — a requirement that did not exist under the current standard.
Key Points
- Material uncertainty is a defined threshold, not a synonym for "doubt about going concern." The auditor must determine whether the threshold is met, not just whether concerns exist.
- The auditor reports material uncertainty even when the opinion is unmodified, through a dedicated MURGC section in the auditor's report. This is not a modification to the opinion.
- Failing to identify material uncertainty when it exists is one of the highest-profile audit failures a regulator can find, because the omission directly affects users' understanding of the financial statements.
- ISA 570 (Revised 2024) requires every auditor's report to include an explicit conclusion on whether material uncertainty exists, making the auditor's assessment visible to all users.
Why it matters in practice
Consider a retailer with 14 stores facing a 17% revenue decline, a fully drawn credit line, and net assets eroding from several million to almost nothing over a single year. Management proposes closing four underperforming stores and presents a conditional bank letter offering an increased credit line. The auditor tests the store closure timeline against the lease break clauses and discovers that two of the four stores have no break clause until 2027. The bank facility expansion is conditional on covenant compliance, not a commitment. Even under the base case, the cash flow forecast shows the entity falling below its covenant threshold within months.
Material uncertainty exists. The outcome depends on future events — covenant compliance and bank credit committee approval — that are genuinely uncertain. If the entity discloses this adequately, the auditor adds a MURGC section and the opinion stays unmodified. If not, the opinion is modified.
The FRC's Tier 2 and Tier 3 inspection results found insufficient procedures to evaluate the impact of loan covenant breaches on the continued availability of financing. Teams accepted the existence of a bank waiver without testing whether the waiver conditions themselves introduced new uncertainty. Teams also treat "close to material uncertainty" as a reason to conclude that no material uncertainty exists, but ISA 570 (Revised 2024) paragraph A73 requires the auditor to document the specific factors that tipped the conclusion one way or the other. A file that simply states the conclusion without the reasoning will not survive inspection.
Key standard references
- ISA 570.17: Determining whether material uncertainty exists after evaluating management's assessment and mitigating plans.
- ISA 570 (Revised 2024).28: Explicit statement when no material uncertainty exists — a new requirement under the revised standard.
- ISA 570 (Revised 2024).30: Including the MURGC section in the auditor's report when material uncertainty exists and disclosure is adequate.
- ISA 570 (Revised 2024).36: Qualified or adverse opinion when material uncertainty exists but the entity has not disclosed it adequately.
- IAS 1.25–26: Requiring the entity to disclose material uncertainties related to going concern in the financial statements.
Related terms
Related tools
Related reading
Frequently asked questions
Is material uncertainty the same as doubt about going concern?
No. Material uncertainty is a defined threshold, not a synonym for doubt. Events or conditions may cast significant doubt on the entity's future, but if management's mitigating plans are feasible and the uncertainty is not material to users' decisions, the threshold is not met. Material uncertainty exists only when the outcome depends on future events that are genuinely uncertain and would affect how users interpret the financial statements.
What happens when material uncertainty exists but the entity discloses it adequately?
The auditor adds a 'Material Uncertainty Related to Going Concern' section to the report, but the opinion itself remains unmodified. The MURGC section draws users' attention to the disclosure in the financial statements. A modified opinion (qualified or adverse) applies only when the entity has not disclosed the uncertainty adequately or when the going concern basis of accounting is inappropriate.