Spotting that a company may not survive is the easy part. The harder work starts when management says "we have a plan". Under SA 570 the auditor has to evaluate management's assessment, test whether the plan is feasible, and decide whether the financial statements and the audit report need to say more.
Last reviewed: 17 October 2026. Facts checked. We could not open the ICAI text of SA 570 or Ind AS 1; we opened search summaries of the Indian standard and ICAI regional training material only. We could not confirm whether ICAI has adopted the 2024 revision of the international standard, which one summary says moves the look-forward start point to the approval date of the financial statements and applies from periods beginning on or after 15 December 2026. Treat that as unverified and check the current SA 570 before relying on any period length or date here.
What the auditor is really asked to do
Management is responsible for deciding whether the going concern basis is appropriate. The auditor evaluates that decision. According to summaries of SA 570 (Revised), where management's assessment covers less than twelve months from the balance sheet date, the auditor asks management to extend it to at least twelve months. The auditor also stays alert to events beyond that period that could cast doubt.
For the indicators themselves, read going concern indicators and what financial data shows. This post begins where that one ends.
Step 1: Ask for the assessment in writing
A verbal "we are fine" is not an assessment. Ask for a short paper with the period covered, the key assumptions, the cash flow forecast and the sources of funding. If none exists, that is itself a finding.
Step 2: Test the forecast, not just the total
A forecast that ends positive can still be built on weak inputs. Check:
- Opening position. Does the forecast start from actual closing cash and debt, or from a rounded number?
- Revenue assumptions. Compare with order book, contracts and recent months. A jump with no pipeline behind it needs an explanation.
- Debt service. Are interest and repayments in the forecast on the dates the loan agreement sets?
- Statutory dues. Payroll, GST, TDS and provident fund are often under-provided in a stressed company. Their absence from the forecast is a warning.
- Past accuracy. How far did last year's forecast miss? A history of misses lowers confidence.
Step 3: Evaluate the plan
Management plans usually fall into four groups. Each needs different evidence.
| Plan | What to ask for |
|---|---|
| Fresh equity or promoter funding | Board resolution, bank statements showing receipt, or a signed commitment with the promoter's own capacity to pay |
| Loan renewal or waiver of covenant | The lender's written letter, not an email saying "in discussion" |
| Asset sales | Agreement, buyer's ability to pay, whether the asset is pledged |
| Cost cuts | Specific, dated actions already started, with payroll and vendor data |
A plan with no third-party evidence behind it should carry little weight. Support from a promoter is only as good as the promoter's ability to pay, so ask whether that was assessed.
Step 4: Look for what has happened since the year end
Events after the balance sheet date can confirm or undermine the plan. Look at bank statements, lender correspondence, orders received, and any legal notices up to the date of the report.
Step 5: Conclude and report
Three outcomes are typical, and the exact reporting language should be taken from the standard itself:
- No material uncertainty. The going concern basis is appropriate and no significant doubt remains. The file records why.
- Material uncertainty exists and is adequately disclosed. The financial statements describe the uncertainty and the plan. The auditor reports this in a separate section of the report rather than modifying the opinion.
- Not adequately disclosed, or the basis is inappropriate. The opinion is modified; an adverse opinion is the usual consequence where the basis is inappropriate. If management refuses to extend its assessment period, summaries of SA 570 say a qualified opinion or a disclaimer may be appropriate.
Check the wording and conditions against the standard before drafting.
A short worked example
A textile exporter has a bank loan falling due in four months and negative operating cash flow for two quarters. Management says a new term loan will refinance it.
- The auditor asks for the sanction letter. It exists but is "subject to security documentation".
- The forecast shows the refinancing in month three. The auditor tests what happens if it slips by two months: the company runs out of cash in month four.
- The auditor concludes that a material uncertainty exists. The note in the financial statements mentions the loan, but not the dependency on security documents. The auditor asks for the note to be improved.
Our free going concern indicator scorer can help you record indicators in a consistent way during planning.
Frequently Asked Questions
Is going concern only about cash?
No. It also covers loss of key customers or licences, legal action, supply failure and inability to meet covenants.
Does a loss mean going concern doubt?
Not by itself. Many loss-making companies are funded. The question is whether funding is committed.
Who decides on the going concern basis?
Management prepares the statements and makes the assessment. The auditor evaluates it.
Does it apply to small companies?
The standard applies to audits of all entities, though the effort scales with risk.
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