Navigating Going Concern in 2025: Disclosure, Judgement, and IFRS Updates

In an era of heightened market volatility and regulatory transformation, assessing whether an entity remains a going concern is more than a compliance exercise—it’s a cornerstone of financial integrity. The decision influences how financial statements are prepared and what disclosures are communicated to stakeholders.

Recent updates to IFRS Accounting Standards and the International Standards on Auditing (ISA) have placed renewed emphasis on transparency and judgement in going concern assessments. For management, boards, and auditors, the challenge is not just making the assessment, but ensuring that disclosures are robust, relevant, and aligned with stakeholder expectations.

Key Updates and Standards in 2025

The guidance on going concern has evolved significantly. Here are the key updates you need to know:

• Transition from IAS 1 to IAS 8:
  Following the introduction of IFRS 18, Presentation and Disclosure in Financial Statements, the going concern requirements were moved from IAS 1 to IAS 8, Basis of Preparation of Financial Statements. This update clarifies the linkage between basis of preparation and disclosures of material uncertainties.

• Effective Dates:

  • IFRS 18 is effective for annual reporting periods beginning on or after 1 January 2027.

  • The International Auditing and Assurance Standards Board (IAASB) issued ISA 570 (Revised 2024), Going Concern, effective for audits of periods beginning on or after 15 December 2026.

• Removal of Pandemic-Specific Guidance:
  The revised materials eliminate COVID-19 references, reinforcing that going concern assessments are relevant in all economic conditions, not just during crises.

Understanding the Going Concern Assessment

At its core, going concern is a binary decision:

• Prepare financial statements on a going concern basis, or

• Use an alternate basis when liquidation or cessation is inevitable.

However, the journey to this decision involves evaluating multiple factors, including:

• Current and forecasted profitability

• Timing of debt repayments and access to replacement financing

• Operational constraints or regulatory restrictions

• Structural market changes (e.g., shifts in customer behavior)

Importantly, IAS 8 requires management to look forward at least 12 months from the reporting date, but does not cap the outlook. National regulations or auditors may require a longer horizon, making this a dynamic and forward-looking process.

The Disclosure Imperative

Preparing financial statements on a going concern basis is only part of the responsibility. Transparent disclosure is critical, especially in close-call scenarios where uncertainties exist.

IAS 8 sets out three key disclosure categories:

• Material Uncertainties (Paragraph 6K): Entities must disclose events or conditions that cast significant doubt on their ability to continue as a going concern.

• Significant Judgements (Paragraph 27G): When management’s conclusion involves considerable judgment, these judgments must be disclosed.

• Sources of Estimation Uncertainty (Paragraphs 31A–31I): Entities must share assumptions and risks that could materially impact asset and liability values within the next financial year.

For investors, these disclosures provide visibility into the assumptions underpinning both the going concern conclusion and the broader financial statements.

Scenarios in Practice

Entities fall across a spectrum of scenarios:

• Scenario 1: No Significant Doubts
  Profitable, no liquidity concerns. Minimal disclosure beyond basis of preparation.

• Scenario 2: Doubts Mitigated by Plans
  Management actions (e.g., refinancing, restructuring) are expected to resolve uncertainties. Disclose judgments behind the conclusion.

• Scenario 3: Material Uncertainties Remain
  Even after mitigation, uncertainties exist—such as funding renewal risk or turnaround feasibility. Full disclosure of uncertainties and actions is mandatory.

• Scenario 4: Not a Going Concern
  Entity intends to liquidate or has no realistic alternative but to cease operations. Disclose alternate basis of preparation and reasons.

Implications for Management and Boards

The evolving landscape demands proactive governance. Boards and audit committees should:

• Validate assumptions underpinning going concern assessments.

• Ensure disclosures align with risk management strategies and provide transparency without causing unnecessary alarm.

• Prepare for enhanced auditor scrutiny under ISA 570 (Revised 2024), which requires deeper evaluation of management’s process and supporting evidence.

Preparing for the Future

Going concern assessments have always been central to financial reporting, but the stakes are higher than ever. With IFRS 18 and ISA 570 revisions on the horizon, organizations must take steps now to strengthen their approach:

• Review current disclosures for alignment with updated guidance.

• Train finance and governance teams on emerging requirements.

• Engage auditors early to ensure a shared understanding of expectations.

In an environment where transparency builds trust, robust disclosures are not just regulatory obligations—they’re strategic imperatives. By acting now, companies can enhance stakeholder confidence and prepare for a future of greater accountability.

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