Going Concern as a Governance Responsibility

Going concern governance – In corporate reporting, going concern is often introduced as a technical premise: financial statements are prepared on the assumption that the entity will continue operating for the foreseeable future. Under IAS 1, that foreseeable future is at least twelve months after the reporting date. Auditors test management’s assessment under ISA 570, disclosures are drafted, and the subject disappears into the back half of the annual report.

That framing is profoundly misleading.

Going concern is not, at its core, an accounting assumption. It is a governance judgment. It requires directors to form an explicit, reasoned view on whether the organisation remains a viable economic entity — not merely today, but across a period in which uncertainty, stress and disruption are plausible rather than hypothetical.

Accounting asks: Can we reasonably assume continuity for reporting purposes?
Governance must ask: Is continuity still defensible given how this organisation actually works, is financed and is exposed?

Those are not the same questions.

Boards that collapse the second question into the first often discover — too late — that compliance has quietly replaced judgment.

2. Why going concern failures are rarely technical failures

When companies fail, post-mortem analyses tend to focus on technical shortcomings: weak controls, flawed forecasts, aggressive accounting, insufficient disclosure. These elements matter, but they are rarely decisive on their own.

The recurring pattern in major corporate failures is different:

liquidity pressure was visible long before collapse;
refinancing dependency increased gradually, not suddenly;
covenant headroom eroded over multiple reporting periods;
operational underperformance was rationalised as temporary;
boards accepted reassurance rather than forcing confrontation.

In other words, the warning signs were not absent — they were absorbed, normalised and postponed.

Carillion did not fail because cash flow models were missing. Wirecard did not fail because no one understood liquidity. Imtech did not fail because covenants were unknown. These organisations failed because boards lost their ability — or willingness — to treat going concern as a decisive governance question rather than an administrative hurdle.

Once that shift occurs, continuity becomes something that is “managed” rather than judged. And when continuity is managed instead of judged, governance quietly erodes.

3. The dangerous comfort of minimum compliance

Modern financial reporting frameworks unintentionally encourage a minimalist approach to going concern. The logic is seductive: Going concern governance

prepare a twelve-month cash flow forecast;
demonstrate technical liquidity headroom;
identify mitigating actions;
conclude that continuation is “reasonably expected”.

If these steps are performed competently, the organisation is deemed compliant.

But minimum compliance is not the same as maximum insight.

A twelve-month forecast can be internally consistent and still fundamentally misleading if it assumes:

uninterrupted access to financing;
stable stakeholder behaviour;
operational recoveries that have not yet materialised;
strategic optionality that does not exist in practice.

Boards must therefore be acutely aware of a structural risk: the better the model, the easier it becomes to defer judgment.

When a going concern assessment becomes an exercise in model validation rather than reality testing, governance shifts from substance to form.

4. Cash: not a balance, but a behavioural signal

Boards often believe they understand liquidity because they see cash balances, credit facilities and headroom tables. This belief is frequently misplaced.

From a governance perspective, cash is not a number — it is behaviour.

The critical question is not how much cash is available today, but how that cash is generated, preserved and sustained under stress. Many organisations appear liquid while quietly eroding their own foundations.

Common patterns include:

accelerated invoicing that pulls future cash forward;
extended supplier payment terms disguised as “working capital optimisation”;
one-off asset disposals treated as operating relief;
customer prepayments driven by dependency rather than value.

These mechanisms are reversible — and often reverse abruptly.

At Imtech, liquidity was supported for an extended period through aggressive cash management and complex intra-group flows. From an accounting perspective, the cash existed. From a governance perspective, it was unstable and conditional.

A board that takes going concern seriously must insist on answering questions such as:

Which part of our cash position is structural?
Which part depends on counterparties continuing to tolerate us?
How quickly could this cash unwind if confidence shifts?

If those questions are uncomfortable, that is not a weakness — it is the point.

5. Covenants: legal compliance versus economic reality

Covenants are often treated as binary signals: compliant or breached. This is a dangerous simplification.

From a governance standpoint, covenants are early-warning instruments, not safety guarantees. They reveal where lenders have drawn their lines — not where risk disappears.

Boards regularly underestimate three covenant-related risks:

First, covenant headroom can evaporate non-linearly. Small deviations in EBITDA, working capital or interest rates can trigger disproportionate consequences.

Second, waivers are not neutral events. Each waiver alters the power balance between company and lender. What appears as relief to management is often interpreted by financiers as increased leverage.

Third, covenant definitions are legal constructs, not economic truths. EBITDA add-backs, pro forma adjustments and exclusions may preserve compliance while underlying performance deteriorates.

A board that concludes “we are in covenant compliance, therefore going concern is secure” is mistaking legal form for economic substance.

The correct governance question is:

If we were forced to renegotiate financing tomorrow, who would be negotiating from strength?

If the answer is “not us”, continuity has already weakened.

6. Refinancing dependency and the illusion of continuity

One of the most consistent precursors to going concern failure is structural refinancing dependency.

Many companies remain solvent not because their operations generate sufficient cash, but because refinancing has historically been available. Over time, this history is mistaken for certainty. Going concern governance

Boards often hear statements such as:

“We have always refinanced successfully”
“The banks know us well”
“This is a timing issue, not a structural one”

These statements may be factually correct — and still irrelevant.

Refinancing is not a right. It is a market judgement made under changing conditions. When refinancing becomes a prerequisite for continuity rather than a strategic choice, governance risk escalates rapidly.

The collapse of Thomas Cook illustrates this clearly. The business continued operating while liquidity depended almost entirely on one shareholder’s support. Operational performance no longer anchored continuity; confidence did.

Boards must explicitly recognise when going concern rests on:

operating resilience, or
stakeholder tolerance.

Those are fundamentally different foundations.

7. Stress testing that forces decisions, not reassurance

Many boards approve stress tests that are technically sophisticated but strategically toothless. These exercises explore incremental deterioration rather than existential disruption.

Typical examples include:

modest revenue declines;
marginal cost inflation;
limited interest rate increases.

Such scenarios rarely challenge continuity. They confirm it.

Effective going concern stress testing does something else entirely: it forces the board to confront decision thresholds.

Examples of governance-relevant stress questions include:

What if refinancing is delayed by six to nine months?
What if one major customer exits unexpectedly?
What if suppliers demand advance payment simultaneously?
What if reputational damage accelerates cash outflows?

A stress test has failed if it does not provoke at least one of the following reactions:

a reconsideration of strategy;
a discussion of contingency plans;
a debate about disclosure;
discomfort around timing.

Boards should not ask whether stress scenarios are “likely”.
They should ask whether they are survivable.

8. Disclosure: the visible output of governance quality

Going concern disclosures are often treated as a compliance afterthought — something to be carefully worded once the “real work” is done. In governance terms, this reverses cause and effect.

Disclosure is not an administrative add-on. It is the public expression of board judgment.

The language used in going concern notes reveals far more than most boards realise. Phrases such as:

“management expects that…”
“the group believes it has sufficient liquidity…”
“headroom is anticipated under reasonably possible scenarios…”

are rarely neutral. They often signal that uncertainty has been acknowledged internally but not fully owned externally.

Boards sometimes resist clearer disclosure out of fear:

fear of alarming markets;
fear of accelerating stakeholder reactions;
fear of being seen as having lost control.

Ironically, the opposite is usually true. Markets and counterparties react more severely to surprise than to transparency. When disclosures lag reality, trust evaporates instantly once conditions change.

Strong boards understand that:

clarity is stabilising, not destabilising;
conditional language can be precise without being alarmist;
acknowledging uncertainty preserves credibility rather than undermining it.

Weak boards treat disclosure as reputation management. Strong boards treat it as governance accountability.

9. The auditor’s role: boundary, not safety net

Auditors play a critical role in assessing going concern, but their mandate is often misunderstood by boards.

Auditors assess whether management’s going concern assumption is reasonable based on available evidence. They do not assess whether the business is strategically viable, morally defensible, or institutionally resilient. That distinction matters.

Governance failures occur when boards:

interpret an unmodified audit opinion as reassurance;
treat auditor agreement as validation of judgment;
defer difficult decisions because “the auditor is comfortable”.

In reality, the audit opinion marks the outer boundary of acceptability, not the centre of good governance.

High-functioning boards engage auditors differently:

early, before narratives are fixed;
critically, not defensively;
as challengers of assumptions, not arbiters of comfort.

The most valuable audit committee conversations on going concern are those where:

auditors openly express unease;
management assumptions are interrogated;
disclosure wording is debated line by line.

If the auditor never makes the board uncomfortable, something is wrong.

10. Going concern in leveraged and private-equity-owned structures

In highly leveraged or private-equity-owned organisations, going concern tension is not episodic — it is structural.

Typical characteristics include:

thin liquidity buffers;
tight covenant packages;
aggressive capital structures;
limited tolerance for operational deviation.

In such environments, continuity is often implicitly framed as:

“Can the company make it to the next refinancing or exit?”

From a narrow investor perspective, this may be rational. From a governance perspective, it is insufficient.

Boards — including non-executive directors appointed by sponsors — retain responsibility for:

employees whose livelihoods depend on continuity;
suppliers whose exposure grows quietly;
creditors whose risk profile evolves;
reputational and societal impact.

Reducing going concern to a financial engineering question strips it of its ethical and institutional dimensions.

Good governance in leveraged structures requires boards to be explicit about:

where risk is transferred, not eliminated;
who bears downside if assumptions fail;
how much optionality truly exists.

Silence on these questions is not neutrality — it is abdication.

11. Boardroom dynamics under existential pressure

Going concern discussions are not just technically difficult. They are emotionally and politically charged.

They challenge:

executive credibility;
strategic narratives;
prior investment decisions;
board self-image.

As pressure increases, boards become vulnerable to predictable dysfunctions:

groupthink and over-alignment;
excessive deference to dominant executives;
reliance on external advisors as shields;
deferral framed as prudence.

The role of the chair is decisive here.

Effective chairs:

legitimise doubt as a governance virtue;
protect dissenting voices;
force articulation of uncomfortable trade-offs;
prevent optimism from hardening into policy.

Weak chairs seek consensus too early. Strong chairs tolerate tension until clarity emerges.

Going concern is often the moment when a board’s true culture becomes visible.

Read more from ACCA Global: Going concern – who is responsible?

12. Early recognition versus late heroics

One of the most damaging myths in corporate governance is that decisive action is always heroic. In reality, late action is usually destructive, even when it is bold.

Boards that recognise going concern risks early have options:

phased restructuring;
orderly asset disposals;
proactive refinancing;
credible stakeholder engagement.

Boards that delay recognition face only binaries:

emergency financing on punitive terms;
disorderly collapse;
reputational destruction;
loss of control.

From a governance perspective, early recognition is not pessimism. It is option preservation.

The tragedy of many corporate failures is not that boards acted too cautiously, but that they acted too late.

13. Going concern as an ethical and institutional judgment

While going concern is often framed in financial terms, its implications are broader.

Declaring continuity where it is no longer defensible:

transfers risk to uninformed stakeholders;
distorts market signals;
undermines trust in reporting.

Conversely, acknowledging uncertainty:

respects stakeholder decision-making;
preserves institutional credibility;
aligns governance with reality.

Boards should therefore understand going concern as not only a financial judgment, but an ethical one.

It answers the question:

Are we being honest about the future we are asking others to commit to?

Conclusion – Where governance stops hiding

Going concern is where governance stops being theoretical.

It is the moment when boards must decide whether they are:

narrators or judges;
optimists or stewards;
defenders of continuity at all costs, or guardians of institutional integrity.

Boards that handle going concern well do not rely on:

technical compliance;
elegant models;
favourable audit opinions.

They rely on:

early recognition;
disciplined skepticism;
explicit ownership of judgment.

Continuity is not assumed.
It is governed.

And when it can no longer be governed responsibly, it must be acknowledged — openly, timely, and without illusion.

That is not an accounting obligation.
That is the essence of board responsibility.

Going concern governance

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The Going Concern Assumption under IAS 1 and IFRS 18

From accounting premise to disclosure discipline

Under IFRS, the going concern assumption is formally anchored in IAS 1 Presentation of Financial Statements. Management is required to assess whether the entity has the ability to continue as a going concern and to prepare the financial statements on that basis unless management intends, or has no realistic alternative, but to liquidate the entity or cease trading. Where material uncertainties exist that may cast significant doubt on the entity’s ability to continue as a going concern, these uncertainties must be disclosed.

In technical terms, IAS 1 establishes a binary threshold: either the going concern basis is appropriate, or it is not. In governance practice, however, the assessment is far more nuanced. Most organisations do not move directly from stability to inevitability of liquidation. They pass through a prolonged phase of heightened uncertainty, during which judgment — not mechanics — determines the quality of reporting.

IAS 1 explicitly places responsibility for the assessment with management, but it also implicitly assumes active board oversight. The standard requires consideration of all available information about the future, at least twelve months from the reporting date, but does not limit management to that period where longer-term risks are relevant. This is a critical governance point: boards should resist treating the twelve-month horizon as a safe harbour. In many capital-intensive, leveraged or contract-based businesses, material risks crystallise beyond that window.

The introduction of IFRS 18 Presentation and Disclosure in Financial Statements does not change the going concern assumption itself, but it materially affects how going concern stress manifests in the financial statements. IFRS 18 sharpens the structure of the statement of profit or loss, introduces defined subtotals such as operating profit and profit before financing and income taxes, and increases discipline around aggregation and disaggregation.

This matters for going concern because presentation quality influences credibility. Under IFRS 18, boards can no longer rely on blended performance narratives that obscure financing stress within operating results. When financing costs, non-operating income or management performance measures are more clearly separated, the economic reality of liquidity pressure becomes harder to disguise. As a result, inconsistencies between reported performance and going concern disclosures become more visible — to auditors, regulators and investors alike.

Another important interaction lies in disclosure coherence. IAS 1 requires that going concern disclosures be entity-specific, clear and not boilerplate. IFRS 18 reinforces this by increasing expectations around linkage between financial performance, cash generation, financing structure and narrative explanations. A generic going concern paragraph is increasingly difficult to defend when the primary statements themselves reveal structural stress.

From a governance perspective, the combination of IAS 1 and IFRS 18 therefore raises the bar. Boards must ensure that:

going concern judgments are consistent with the way performance and financing are presented;
material uncertainties are not downplayed by optimistic aggregation;
management performance measures do not undermine the credibility of continuity assessments.

In short, IAS 1 defines the assumption, but IFRS 18 exposes its weaknesses. Together, they shift going concern from a narrow accounting premise to a test of internal consistency, transparency and board judgment.

Read more on going concern in IAS 10 Judgments and Estimates for Events After the Reporting Period.

Going concern governance

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