Going concern is not a label the auditor accepts from management. It is the basis on which the financial statements are prepared: the assumption that the entity will continue in operation for the foreseeable future, so that assets and liabilities are recorded on the basis that they will be realised and discharged in the normal course of business. The audit question is whether that basis is appropriate, and whether a material uncertainty exists that the reader needs to know about.
In India the requirements sit in SA 570 (Revised), Going Concern, which is effective for audits of financial statements for periods beginning on or after 1 April 2017. ICAI's Auditing and Assurance Standards Board added practical guidance through the Implementation Guide to SA 570 (Revised), announced on the ICAI website on 21 August 2019. The standard is listed under its revised title in ICAI's Engagement and Quality Control Standards repository, last updated on 13 May 2026.
Who does what
The Implementation Guide is direct on this point: the assessment of an entity's ability to continue as a going concern is the responsibility of the entity's management. Management prepares the financial statements and holds the budgets, funding plans and forecasts. The auditor does not build the business plan. The auditor obtains sufficient appropriate audit evidence about, and concludes on, the appropriateness of management's use of the going concern basis, and concludes whether a material uncertainty exists about the entity's ability to continue.
That responsibility does not change when an Interim Resolution Professional manages the company during a corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016. The Guide makes clear that the auditor still evaluates the position independently on the information available, and that the twelve-month assessment period is separate from the tenure of the insolvency process.
The twelve-month rule and the period beyond it
The auditor evaluates management's assessment over the same period that management used, as required by the financial reporting framework or by law if it specifies a longer period. If management's assessment covers less than twelve months from the date of the financial statements, the auditor requests management to extend it to at least twelve months from that date. For a 31 March 2026 balance sheet, that means an assessment that runs at least to 31 March 2027.
The auditor also inquires of management about its knowledge of events or conditions beyond the assessment period that may cast significant doubt on the entity's ability to continue. A large bond maturing in May 2027 does not fall inside a twelve-month window from 31 March 2026, but it is exactly the kind of matter this inquiry is meant to bring out.
Warning signs that trigger closer work
The Implementation Guide groups events or conditions that may cast significant doubt into three sets. None of them decides the question alone, but each should be linked to specific evidence in the working papers.
| Type | Examples given in the Guide |
|---|---|
| Financial | Operating losses, negative net worth, working capital deficiency, negative operating cash flows, inability to pay creditors on due dates, default on loan repayments, arrears in dividends |
| Operating | Loss of key management staff, labour difficulties, loss of a major customer or supplier, management's intention to liquidate or cease operations |
| Other | Non-compliance with capital or other statutory requirements, pending legal proceedings that the entity may not be able to satisfy, changes in law or government policy, obsolescence of products |
A positive year-end bank balance or a positive net worth does not settle the question. Going concern is forward-looking, and the analysis has to connect liquidity, debt maturities and operating plans to the period being assessed.
The evidence management should be able to show
The Guide lists the kind of evidence management typically relies on: cash-flow projections showing the ability to pay debts as they fall due, detailed business plans where conditions are deteriorating, support for obtaining new or replacement funding, an assessment of debt-covenant risk, and support letters from a parent or group company. The audit question is not whether a forecast exists but whether its assumptions are realistic and supported.
- Cash-flow forecast: reconcile opening cash, expected receipts, committed payments, financing flows and key assumptions to available records.
- Funding: inspect the status, terms and timing of refinancing or new facilities rather than relying on an intention to raise funds.
- Covenants: identify each covenant test, the forecast headroom and what happens on a breach.
- Business plan: connect expected sales, margins, cost cuts or asset sales to evidence that makes them plausible.
- Actual results after year end: compare them with the forecast where they are available before the report is signed.
Support and comfort letters
A support letter does not solve the problem by itself. The Guide states that a mere support letter will generally not constitute sufficient appropriate audit evidence, and that the auditor should evaluate the financial strength and capability of the entity giving the support. A promise from a parent that is itself short of cash does not remove the uncertainty.
Additional procedures once doubt is identified
When events or conditions are identified that may cast significant doubt, the auditor performs additional procedures to decide whether a material uncertainty exists. The Guide lists these:
- Request management to make its assessment, where it has not yet done so.
- Evaluate management's plans for future actions and whether they are feasible and likely to improve the situation.
- Where management relies on a cash-flow forecast, evaluate the reliability of the underlying data and whether the assumptions are adequately supported.
- Consider whether any additional facts or information have become available since management made its assessment.
- Request written representations from management about its plans for future actions and their feasibility.
Worked example: a loan falling due four months after year end
A company closes its books on 31 March 2026 with cash of ₹2.5 crore. A term loan of ₹12 crore is repayable on 31 July 2026. Management's twelve-month forecast shows net operating cash inflow of ₹0.45 crore a month and assumes the lender will roll the loan over, but the lender has not committed.
| Scenario | Cash at 31 July 2026 before repayment | Position after repayment | Position at 31 March 2027 |
|---|---|---|---|
| No refinancing | ₹2.5 crore + 4 × ₹0.45 crore = ₹4.3 crore | Shortfall of ₹7.7 crore | Shortfall of ₹4.1 crore |
| ₹8 crore refinanced, ₹4 crore repaid | ₹4.3 crore | ₹0.3 crore | ₹3.9 crore |
The forecast only works if most of the loan is refinanced, and even the partial refinancing case leaves only ₹0.3 crore of headroom in August 2026. The auditor should not accept the forecast because its arithmetic adds up. The work should cover lender correspondence and term sheets, the status of negotiations, covenant compliance, alternative funding, the realism of the ₹0.45 crore monthly inflow compared with actual months after year end, and management's contingency plan, followed by a written representation on its plans and their feasibility.
If the auditor then concludes that the refinancing risk casts significant doubt and the uncertainty is material, the next question is whether the notes adequately describe the principal events or conditions, management's plans and the fact that a material uncertainty exists.
How the conclusion maps to the auditor's report
The reporting outcome depends on two separate conclusions: whether the going concern basis is appropriate, and whether a material uncertainty exists and is adequately disclosed.
| Conclusion | Reporting outcome |
|---|---|
| Basis appropriate, material uncertainty exists, disclosure adequate | Unmodified opinion with a separate section headed "Material Uncertainty Related to Going Concern" |
| Basis appropriate, material uncertainty exists, disclosure not adequate | Qualified or adverse opinion, as appropriate |
| Going concern basis inappropriate but used | Adverse opinion |
| Events or conditions identified but no material uncertainty | Evaluate whether the financial statements give adequate disclosure of those events or conditions under the framework |
The separate material uncertainty section is not an Emphasis of Matter paragraph. Under the revised standard it replaced the earlier practice of using an Emphasis of Matter for this situation, and the Guide confirms that where the separate section is required, an additional Emphasis of Matter paragraph on the same matter is not required. Nor is a Key Audit Matter a substitute: communicating key audit matters under SA 701 does not replace reporting under SA 570 (Revised) when a material uncertainty exists.
Talking to those charged with governance
Unless all of those charged with governance are involved in managing the entity, the auditor communicates with them about events or conditions that may cast significant doubt. The communication covers whether they constitute a material uncertainty, whether the going concern basis is appropriate, the adequacy of the related disclosures and the implications for the auditor's report. Where approval of the financial statements is significantly delayed after the balance sheet date, the auditor inquires about the reasons and, if the delay may relate to going concern, performs additional procedures.
Going concern checklist for the file
- Obtain management's documented assessment and note the period it covers.
- If it covers less than twelve months from the balance sheet date, request an extension.
- Inquire about events or conditions beyond the assessment period, such as later debt maturities.
- List financial, operating and other warning signs and link each to evidence.
- Test the forecast, key assumptions, funding plans and covenant headroom.
- Where group support matters, assess both the commitment and the supporter's financial capacity.
- Obtain written representations on management's plans and their feasibility.
- Conclude separately on the basis of accounting and on material uncertainty.
- Evaluate the disclosure, then map the conclusion to the reporting outcome above.
- Communicate with those charged with governance and document the reasoning.
Mistakes to avoid
- Treating a positive net worth or a year-end bank balance as proof that no issue exists.
- Accepting an optimistic forecast without testing assumptions and financing dependencies.
- Relying on a support letter without assessing the supporter's ability to pay.
- Assuming a material uncertainty always means a qualified opinion; with adequate disclosure the opinion is unmodified and the separate section is added.
- Using an Emphasis of Matter or a Key Audit Matter in place of the section SA 570 (Revised) requires.
Updated on 27 September 2026: retitled; merged the red-flags and reporting guides into this page; added the effective date, the Guide's lists of warning signs and additional procedures, communication with those charged with governance, the insolvency process point and a worked refinancing forecast.
