Close Call Scenarios: How to Disclose Risks Without Spooking Investors

Few areas in financial reporting are as delicate as “close call” going concern scenarios. These situations occur when significant uncertainties exist, but management concludes that the entity can continue as a going concern—often due to mitigating actions such as refinancing plans, cost reductions, or operational turnarounds.

The challenge? Striking the right balance between transparent disclosure and avoiding unnecessary alarm among investors and stakeholders. In this article, we explore what defines a close call, the disclosure requirements under IAS 8, and best practices for communicating risks effectively without eroding confidence.

What Is a Close Call?

A close call arises when:

• The entity faces significant financial or operational challenges, and

• Continued operation depends heavily on successful execution of management plans or external factors.

Examples:

• A liquidity crunch, but negotiations for refinancing are underway.

• Declining demand in core markets, offset by a planned turnaround strategy.

• Expiring debt facilities with confirmed but not finalized renewals.

These scenarios require judgment-driven disclosure that provides clarity without triggering panic.

IFRS Requirements for Close Calls

Close calls are disclosure-heavy areas under IFRS. Here’s what you need to know:

1. Material Uncertainties (IAS 8 para 6K)

If uncertainties may cast significant doubt on going concern, disclosure is mandatory:

• Nature of the uncertainties.

• Events or conditions causing doubt.

• Management’s plans to address them.

2. Significant Judgments (IAS 8 para 27G)

Even if management concludes there are no material uncertainties, but that conclusion involved significant judgment, the reasoning must be disclosed.

3. Estimation Uncertainty (IAS 8 paras 31A–31I)

When key assumptions carry risk of material adjustment in the next financial year, disclose:

• Assumptions used (e.g., revenue forecasts, refinancing timelines).

• Sensitivity analysis if a small change in assumptions could affect viability.

Striking the Right Balance

Close-call disclosures require a careful tone:
✅ Be Transparent, Not Alarmist
Explain the risks clearly, but emphasize realistic mitigation plans and progress.
Example:
“While demand declined 15% in Q4, the company secured a binding term sheet for a three-year refinancing facility, mitigating liquidity risk.”

✅ Provide Context and Forward-Looking Insights
Outline what management is doing to address uncertainty, supported by concrete actions and timelines.

✅ Use Quantitative Analysis Where Relevant
Sensitivity analysis can help investors understand risk without speculation.

Common Mistakes to Avoid

• Over-Disclosure Creating Panic
  Dumping every possible risk without context undermines confidence.

• Generic Language That Adds No Value
  Statements like “Management has considered the entity’s ability to continue as a going concern” don’t inform investors.

• Omitting Key Judgments
  Failure to disclose why management believes the going concern basis is appropriate can lead to audit challenges and regulatory scrutiny.

A Practical Framework for Close Call Disclosures

Step 1: Identify Key Uncertainties and Judgments
What events or conditions could impact going concern status?

Step 2: Align Narrative Across Reports
Ensure consistency between the financial statements, MD&A, and governance reports.

Step 3: Involve Auditors and Boards Early
Early discussions help avoid last-minute disagreements and ensure compliance with ISA 570 (Revised 2024).

Close call scenarios demand strategic disclosure—enough transparency to meet IFRS requirements and maintain trust, but framed with context and confidence.

By adopting a principle-based approach—focusing on clarity, alignment, and actionable detail—organizations can turn a regulatory challenge into an opportunity to reinforce credibility with stakeholders.

Next Step!