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Going concern checklist for ASC 205-40 and AU-C 570.

Is there substantial doubt this entity can keep going for another year?

Tick the conditions and events, record management's plans against the two probable tests, check liquidity and cash runway, and copy a structured summary with next steps.

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1. Conditions and events

Tick what applies, considered for the one year after the date the financial statements are issued or available to be issued.

Negative financial trends
Other indications of possible financial difficulty
Internal matters
External matters
2. Management's plans

Plans count only if it is probable they will be effectively implemented within the period and probable they will mitigate the conditions (ASC 205-40-50-7). Tick both only with evidence.

3. Liquidity check
Conditions identified
3
2 plan(s), 0 meeting both probable tests
Current ratio
0.77x
Working capital -$700,000
Cash runway
7.5 mo
Runs out before 03/31/2028 (15.0 mo needed)
Action
Conditions identified without plans that meet both probable tests
If the conditions raise substantial doubt in the aggregate, nothing entered here alleviates it. Expect the ASC 205-40-50-13 disclosures and a going concern section in the auditor's report under AU-C 570.
Summary for the file
Work shownrecomputed as you type
Going concern summary (ASC 205-40 / AU-C 570) Assessment period: one year after issuance, 03/31/2027 to 03/31/2028 Conditions and events identified: 3 Negative financial trends: - Recurring operating losses - Negative cash flows from operating activities Other indications of possible financial difficulty: - Default on loans or similar agreements, or a covenant breach Management's plans: - Borrow money or restructure debt: implementation not shown probable; mitigation not shown probable (Waiver and amendment under negotiation with the lender) - Reduce or delay expenditures: implementation probable; mitigation not shown probable (Headcount reduction approved by the board) Liquidity: current ratio = $2,400,000 ÷ $3,100,000 = 0.77x; working capital -$700,000 Cash runway = $900,000 ÷ $120,000 per month = 7.5 months Runway check: 7.5 months vs. 15.0 months from the balance sheet date to the end of the assessment period Next steps: 1. Obtain management’s written evaluation and the cash flow forecast covering one year after the date the financial statements are issued (or available to be issued). 2. Assess the conditions in the aggregate: is it probable the entity will be unable to meet its obligations as they come due in that year? (ASC 205-40-20 definition of substantial doubt) 3. For each plan, obtain evidence that it is probable of being implemented (approvals, signed term sheets, board minutes) and probable of mitigating the conditions (ASC 205-40-50-7). 4. Test the forecast assumptions against history, subsequent results and the plans; consider the debt classification under ASC 470-10-45-11 if covenants are breached. 5. If substantial doubt is not alleviated, check the disclosures in ASC 205-40-50-13, including the statement that there is substantial doubt, and plan the separate going concern section of the auditor’s report under AU-C 570. 6. Obtain written representations, communicate with those charged with governance, and reassess through the report date.

This is a structured checklist, not a score: the number of ticked items does not measure the likelihood of failure. ASC 205-40 asks whether it is probable, considering the conditions in the aggregate, that the entity cannot meet obligations due within one year; that judgment stays with management and the auditor.

The two-step going concern evaluation

ASC 205-40 puts the evaluation on management. First, consider whether conditions and events, in the aggregate, raise substantial doubt about the ability to meet obligations within one year after issuance. The standard's examples (ASC 205-40-55-2) fall into four groups: negative financial trends, other indications of financial difficulty, internal matters and external matters. Second, if substantial doubt is raised, consider whether management's plans alleviate it, which requires both implementation and mitigation to be probable (ASC 205-40-50-7 and 55-3).

AU-C 570 requires the auditor to evaluate management's assessment, obtain evidence for the plans and the forecast behind them, obtain written representations, and consider the adequacy of the disclosures. When substantial doubt remains, the auditor's report includes a separate section headed "Substantial Doubt About the Entity's Ability to Continue as a Going Concern."

Common questions

What is the going concern assessment period under US GAAP?

Management evaluates whether there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, or available to be issued (ASC 205-40-50-1).

When does substantial doubt exist?

When conditions and events, considered in the aggregate, indicate it is probable that the entity will be unable to meet its obligations as they become due within that one-year period (ASC 205-40-20, glossary).

Can management’s plans alleviate substantial doubt?

Only if it is probable that the plans will be effectively implemented within the period and probable that they will mitigate the conditions (ASC 205-40-50-7). Typical plans are disposing of assets, borrowing or restructuring debt, reducing or delaying spending and raising equity.

What disclosures are required?

If substantial doubt is alleviated by plans, disclose the conditions, management’s evaluation and the plans (ASC 205-40-50-12). If it is not alleviated, also state that there is substantial doubt about the entity’s ability to continue as a going concern (50-13).

Does this tool give a probability of failure?

No. It organizes the evidence: which conditions exist, which plans meet the two probable tests, and the liquidity figures. The conclusion is a judgment for management and, separately, the auditor under AU-C 570.

Runs in your browser. The figures you type are not sent to CORAA or stored. Check the result against your firm's methodology before relying on it.

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