Going Concern and Material Uncertainty: Strengthening Transparency in Financial Reporting

The concept of going concern is a cornerstone of financial reporting. Financial statements are generally prepared on the assumption that the entity will continue operating for the foreseeable future. When this assumption is in doubt, the implications for investors, regulators, and creditors are significant.

In April 2025, the IASB and IFRS Foundation staff published new educational material on going concern and material uncertainty, designed to assist preparers, auditors, and regulators. While not a new standard, this guidance clarifies expectations under IAS 1 (Presentation of Financial Statements) and ISA 570 (Going Concern).

For Caribbean businesses navigating economic volatility, climate-related risks, and currency challenges, these updates are particularly important. They set clearer expectations for disclosures, judgments, and communication about financial stability.

Why This Matters

Going concern disclosures have been inconsistent in practice. Some companies disclose too little, leaving investors uncertain about risks, while others overwhelm readers with technical language. The new educational material aims to:

• Improve clarity around going concern assumptions;

• Enhance consistency in disclosures;

• Ensure stakeholders are alerted to material uncertainties that could affect solvency or liquidity.

Key Elements of the 2025 Educational Material

1. The Going Concern Assessment

• Management must assess whether the entity will remain operational for at least 12 months after the reporting date.

• This includes considering both internal factors (cash flow forecasts, financing facilities, debt covenants) and external factors (economic conditions, regulations, market volatility).

2. Indicators of Material Uncertainty

• Significant doubt exists when events or conditions cast substantial uncertainty on the entity’s ability to continue as a going concern.

• Examples include:

  • Inability to refinance debt;

  • Reliance on government subsidies with uncertain renewal;

  • Severe supply chain disruptions;

  • Climate-related risks threatening core operations.

3. Disclosure Expectations

• Entities must clearly explain:

  • The assumptions underlying the going concern basis;

  • Identified material uncertainties;

  • Management’s plans to mitigate risks.

• Disclosures should be entity-specific, avoiding boilerplate language.

4. Alignment with Auditing Standards

• The educational material aligns with ISA 570 (Going Concern), helping auditors evaluate management’s assessments and ensure disclosures are fair and complete.

Implications for Caribbean Businesses

Macroeconomic Volatility

• Exchange rate instability (Jamaica, Trinidad & Tobago) and FX shortages (Guyana) may raise going concern risks.

• Transparent disclosure reassures lenders and investors.

Climate Change and Natural Disasters

• Caribbean nations face heightened risks from hurricanes and sea level rise.

• Going concern disclosures must reflect climate-related uncertainties and resilience strategies.

Tourism and Hospitality

• External shocks such as pandemics or global travel downturns can threaten liquidity.

• Clear disclosure of risk management and recovery strategies is critical.

SMEs and Family-Owned Businesses

• Smaller businesses may struggle with access to financing.

• Early adoption of strong going concern practices strengthens credibility with banks and regulators.

Hypothetical Case Studies

Case 1: Jamaican Manufacturing Firm

• Facing USD shortages, the company discloses reliance on short-term financing and central bank interventions.

• Material uncertainty disclosure strengthens transparency and investor trust.

Case 2: Trinidad Hotel Operator

• Climate-related hurricane risk disclosed alongside resilience investments.

• Provides assurance that management has mitigation strategies.

Case 3: Guyanese Oil Services SME

• Dependent on a single major client. Disclosure highlights concentration risk and management’s diversification plan.

Action Plan for Businesses

1. Early Assessment

   • Integrate going concern assessments into risk management and budgeting processes.

2. Strengthen Governance

   • Boards and audit committees must challenge assumptions and review disclosures.

3. Enhance Transparency

   • Provide entity-specific disclosures, avoiding generic language.

4. Link to Sustainability

   • Connect going concern disclosures with ISSB climate and transition plan reporting.

5. Engage Auditors Early

   • Collaborate with auditors to validate assumptions and disclosures.

How Dawgen Global Can Help

At Dawgen Global, we provide comprehensive support to ensure compliance and enhance trust:

• Risk Diagnostics: Identifying financial, operational, and climate-related risks.

• Disclosure Advisory: Drafting clear and transparent going concern disclosures.

• Board Training: Strengthening oversight of financial resilience.

• Audit Support: Ensuring alignment with IFRS and ISA 570 expectations.

• Sustainability Integration: Linking going concern assessments with ISSB sustainability disclosures.

Conclusion

The 2025 educational material on going concern and material uncertainty underscores the growing expectation for transparency, accountability, and forward-looking insight in financial reporting.

For Caribbean businesses, adopting best practices now will build investor confidence, ease access to financing, and enhance resilience in the face of economic and climate-related challenges.

📣 Call to Action

At Dawgen Global, we help Caribbean businesses strengthen going concern assessments and enhance disclosures to meet IFRS and audit expectations. Contact our team to improve your reporting resilience and investor confidence.

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