Going concern is where most difficult audit conversations happen, and where they happen latest. The pattern is familiar: fieldwork completes, the numbers are agreed, and then a question about the forecast turns a routine sign-off into three weeks of work under deadline pressure.
Almost all of that is avoidable by understanding what the auditor needs before they ask.
The assessment is management’s, not the auditor’s
Directors make the going concern assessment. The auditor evaluates it. That distinction matters practically, because an auditor cannot accept “you tell us” as an answer, and a board that has not done the work cannot produce it quickly.
The assessment requires you to conclude that the entity can continue in operation and meet its liabilities as they fall due for at least twelve months from the date the financial statements are approved. Note the date. Not twelve months from the year end. If your December year end is approved in June, you are looking to at least the following June, which is eighteen months of forecast.
What evidence actually supports it
A cash flow forecast covering the full period. Monthly, integrated with a profit and loss and balance sheet, and built from drivers rather than a percentage uplift on last year. It should show the low point of cash, not just the year end position, because a business can end the period comfortably and still run out in month seven.
Covenant compliance calculations across the forecast period. Every covenant, tested at every measurement date, with the headroom shown. A forecast that demonstrates positive cash but a covenant breach in month nine has not demonstrated going concern.
Facility documentation. Committed facilities, their expiry dates, and any conditions. A facility expiring inside the forecast period is a significant matter, and “we expect to renew” is not evidence. Evidence is a renewal, a term sheet, or a documented discussion with the lender.
Sensitivity analysis. Reasonably possible downside scenarios, quantified, with the effect on cash and covenants shown. What if revenue is 10% lower. What if your largest customer leaves. What if the working capital cycle stretches by two weeks. Auditors will ask, and it is faster to have done it.
Mitigating actions, with evidence they are available. Cost reductions, deferred capital expenditure, drawdown of facilities. These count only where they are within your control and could actually be executed. “We would reduce headcount” is worth more with a costed plan than as an assertion.
Post-year-end trading. Actual results since the year end compared with the forecast. If the first four months are already behind, the forecast has a credibility problem.
Where support letters help, and where they do not
A letter of support from a parent or major shareholder can be decisive. It is evidence to the extent that the provider has both the ability and the intention to provide support.
Ability means the supporter has the resources. Auditors will look at the supporter’s own accounts. A letter from a holding company whose only asset is the shares in your company is not evidence of anything.
Intention means the letter is specific: what will be provided, up to what amount, for what period, and signed by someone with authority to commit. A one-line letter saying support will be provided as required is considerably weaker than one that names a figure and a date.
Get the letter before the audit. Requesting it during completion signals that it was not part of the original assessment.
Material uncertainty is not a failure
If there is significant doubt but the going concern basis remains appropriate, the accounts disclose a material uncertainty and the auditor draws attention to it. The opinion is unmodified.
This is not a disaster and it is not an audit failure. It is a description of reality. Lenders and investors do read it and do react, so the disclosure should be drafted carefully and the board should be prepared to discuss it.
What is much worse is a material uncertainty that surfaces late, is disclosed grudgingly, and reads as though it was extracted from management rather than volunteered.
Do this in advance
Prepare the forecast before the year end, not after. Test it against your covenants. Identify the low point of cash. Write down the assumptions while you can still remember why you made them. Take the board through it and minute the discussion.
An auditor evaluating a well-prepared assessment asks questions and moves on. An auditor evaluating an assessment being built in real time asks questions that generate more work, at the point in the timetable where there is least room for it.