Going concern: the assessment directors sign before the accounts

Going concern is the assumption that a business will continue operating for the foreseeable future — normally at least twelve months from the date the accounts are approved. It is not a formality. Every set of financial statements is prepared on that basis, and if the basis is wrong the numbers are wrong: assets held for continued use would be measured at what they would fetch in a wind-down instead. Directors have to make the judgement and be able to show how they made it.

What the going concern assessment covers

• A cash flow forecast running at least twelve months from approval, not from the year end — a distinction that quietly adds several months in a late filing.
• Available facilities: what is committed, what is on demand, when it expires and whether renewal has actually been discussed with the lender.
• Covenants, tested against the forecast, including headroom at each test date rather than only at the year end.
• Sensitivities: what happens if revenue falls by a plausible amount, if a large customer leaves, if a receivable is not collected.
• Mitigating actions genuinely within your control — deferring capital spend, cutting discretionary cost — separated from actions that require someone else to agree.
• Any events after the balance sheet date that change the picture.

The three outcomes

1. Going concern with no material uncertainty: the ordinary case, and the assessment still needs to be documented even though nothing is disclosed about it.
2. Going concern with a material uncertainty disclosed: the business is expected to continue, but something significant could change that — a facility renewal, a contract decision. This is disclosed prominently and the auditor refers to it.
3. Not a going concern: the accounts are prepared on a break-up basis, which changes measurement throughout.
4. The middle outcome is the one companies resist, and resisting it is usually a mistake — a disclosed uncertainty is far less damaging than an undisclosed one discovered later.

Directors cannot delegate this to the auditor. The auditor forms a view on your assessment; they do not make it. An assessment that consists of a conversation and a feeling is the most common weakness found, and it is also the one that becomes personally uncomfortable if the company fails within the year.

What to document

• The forecast itself, with the assumptions stated and dated.
• The sensitivities run and what they showed, including the ones that were uncomfortable.
• Evidence for anything relied upon: a letter of support, a facility agreement, a signed contract — a verbal assurance from a parent company is worth very little at this point.
• The board’s conclusion and the date it was reached, minuted properly rather than noted in passing.
• Where a material uncertainty exists, the wording of the disclosure agreed with the auditor rather than drafted at the last minute.

Where the assessment lives

Ettex Sheets is where the forecast and its sensitivities belong — one model, with the scenarios as columns rather than as separate files nobody can reconcile later. Keep the version that supported the conclusion, dated, because the question asked afterwards is always what you knew at the time rather than what turned out to be true. The board’s decision belongs in the minutes with the same date. Ettex does not prepare financial statements, does not assess solvency and is not a substitute for your accountant or auditor; going concern is a judgement with legal consequences for directors.