Written by Ian Rodd
Ward Goodman
March 3, 2025
Going Concern: Key Considerations For Directors
If your auditor has asked you to confirm your company’s position on Going Concern, are you confident in your response? There are four possible conclusions, and selecting the right one is critical to ensuring your financial statements accurately reflect your situation.
This guide will help you understand the implications of each response and how to prepare for your auditor’s inquiry.
What Does “Going Concern” Mean?
The term going concern refers to a company’s ability to continue operating and meet its financial obligations for the foreseeable future – typically at least 12 months from the reporting date.
Auditors assess whether a company qualifies as a going concern based on financial performance, cash reserves, and future projections.
How to Determine Your Position
1. No Going Concern Issues
If you are confident that your business has sufficient cash reserves and reliable financial management, this question may not be a concern. Your financial statements will not require any additional disclosures beyond the standard reporting.
2. Going Concern with No Material Uncertainties (But Requires Significant Judgement)
If you are reasonably certain that your company will remain a going concern, but some elements of your forecasts involve judgement – such as expected contract renewals or future funding – you may need to disclose this in your financial statements. This helps stakeholders understand the extent of your reliance on estimates.
3. Going Concern with Material Uncertainties
If your ability to continue as a going concern depends on the outcome of significant events – such as obtaining critical funding, securing major contracts, or resolving legal matters – this must be disclosed. According to FRS 102, material uncertainties must be clearly stated in your financial statements to provide transparency for auditors and stakeholders.
4. Not a Going Concern
If your business is facing serious financial difficulties and cannot meet its obligations, it may not be appropriate to prepare your accounts on a going concern basis. In this case, you will need to adopt an alternative reporting method, often in consultation with an insolvency practitioner.
Next Steps
As a director, ensuring your disclosures reflect your financial position accurately is essential. If you are uncertain about how to report your going concern status, consulting with your auditor or an accounting expert can help you navigate the disclosure requirements.
How Ward Goodman Can Help
At Ward Goodman, our expert audit and accounting team can provide guidance on going concern assessments, financial statement disclosures, and compliance with FRS 102. We work closely with businesses to ensure transparency and accuracy in financial reporting.
If you would like to discuss your financial reporting requirements or need support in preparing for your audit, contact our team today.
