ISA 570 (Revised): Going Concern – Lessons from Recent Global Failures

A company’s ability to continue operating as a going concern is fundamental to financial reporting. It underpins valuations, investor decisions, regulatory trust, and strategic planning. If stakeholders lose confidence in an entity’s going concern assumption, the consequences can be devastating—affecting share prices, credit access, and even national economies.

ISA 570 (Revised): Going Concern places responsibility on auditors to evaluate management’s assessment of whether a business can continue operating for the foreseeable future, usually at least 12 months after the reporting date. This evaluation goes beyond accounting—it is a question of survival.

Recent global corporate collapses, from Carillion (UK) to Wirecard (Germany) and regional financial scandals in the Caribbean, highlight how critical robust going concern assessments are. Misjudgments or failures to flag risks have eroded public trust in both companies and auditors.

This article explores the requirements of ISA 570, lessons from recent failures, sector-specific risks in Jamaica and the Caribbean, and how Dawgen Global applies rigorous methodologies and contextual intelligence to safeguard investor confidence.

Understanding the Going Concern Assumption

What is “Going Concern”?

• A business is a going concern if it will continue operations into the foreseeable future, meeting its obligations and not liquidating.

• Financial statements are prepared under this assumption unless liquidation or cessation is imminent.

ISA 570 Requirements

• Management’s Responsibility: Assess whether the entity is a going concern.

• Auditor’s Responsibility: Evaluate management’s assessment, identify risks, and consider if disclosures are adequate.

• Audit Reporting: If significant doubt exists, auditors must highlight it through a “Material Uncertainty Related to Going Concern” paragraph.

Key Elements in Evaluation

• Forecasting cash flows

• Analyzing debt obligations and refinancing plans

• Reviewing regulatory and legal challenges

• Considering external factors (economic shocks, pandemics, natural disasters)

Lessons from Global Failures

1. Carillion (UK, 2018)

• A construction giant collapsed under billions in debt.

• Auditors faced criticism for failing to question management’s overly optimistic cash flow projections.

• Lesson: Professional skepticism is critical. Auditors must challenge assumptions rather than accept them.

2. Wirecard (Germany, 2020)

• A fintech company overstated assets and cash balances by €1.9 billion.

• Going concern warnings were not adequately raised before collapse.

• Lesson: Reliance on management-provided evidence without independent verification undermines audit quality.

3. Regional Lessons – The Caribbean

• Financial institutions in the region have faced going concern risks due to liquidity crises, governance failures, or regulatory breaches.

• For example, in Jamaica and Trinidad & Tobago, instances of fraud and insolvency in financial entities highlighted weak internal controls and overreliance on optimistic forecasts.

• Lesson: In markets with smaller economies, governance and liquidity shocks have amplified effects.

Sector-Specific Going Concern Risks in Jamaica & the Caribbean

1. Financial Services

• Vulnerability to credit losses under IFRS 9.

• High exposure to non-performing loans.

• Regulatory penalties for AML/CFT breaches.

2. Hospitality and Tourism

• Seasonality, global travel shocks (e.g., COVID-19).

• Dependence on foreign exchange inflows.

• Rising costs of energy and operations.

3. Construction and Real Estate

• Liquidity challenges in long-term projects.

• Dependence on external financing.

• Project delays due to supply chain disruptions.

4. Public Sector Entities

• Fiscal pressures, reliance on government subventions.

• Procurement irregularities.

• Policy changes affecting sustainability.

Common Challenges for Auditors

1. Over-Optimism in Management Forecasts

   • Auditors must test assumptions, not just review them.

2. Weak Documentation

   • Many Caribbean SMEs lack formal forecasts or cash flow projections.

3. External Shocks

   • Small economies are highly exposed to hurricanes, pandemics, and commodity price shifts.

4. Disclosure Failures

   • Inadequate going concern disclosures undermine transparency and investor confidence.

5. Pressure on Auditors

   • Auditors may face pressure to avoid issuing going concern warnings to protect relationships.

Governance and Oversight

Boards and audit committees have a crucial role in ensuring robust going concern assessments.

• Audit Committees: Must review management’s forecasts and challenge assumptions.

• Boards: Should embed risk management processes to detect early warning signs.

• Regulators: Expect transparency in disclosures and credible audit opinions.

Failure in governance often precedes going concern issues—making Board oversight as important as auditor responsibility.

Dawgen Global’s Approach to Going Concern

At Dawgen Global, we treat going concern as more than an audit checklist—it is a strategic review of sustainability.

Our Methodology:

1. Independent Forecast Testing

   • We rigorously challenge management’s cash flow forecasts, debt assumptions, and refinancing strategies.

2. Sector-Specific Insights

   • Our multidisciplinary teams bring expertise in financial services, tourism, construction, and public sector to contextualize risks.

3. Technology-Enhanced Analysis

   • Use of data analytics and stress testing for liquidity scenarios.

4. Governance Advisory

   • Guidance for Boards and audit committees on oversight and disclosure.

5. Partner-Led Engagements

   • Senior involvement ensures judgments are robust and defendable.

Case Example: Hospitality Industry

A hotel group engaged Dawgen Global during a liquidity crisis triggered by the pandemic.

Findings:

• Forecasts underestimated the impact of prolonged travel restrictions.

• Weak internal controls over cash flow monitoring.

Dawgen’s Solution:

• Implemented stress testing under multiple scenarios.

• Advised the audit committee on disclosure enhancements.

• Assisted in negotiations with lenders for debt restructuring.

Outcome:

• Transparent disclosures improved investor confidence.

• The group secured refinancing, averting insolvency.

ISA 570 (Revised): Going Concern reinforces that the auditor’s role is not to predict the future but to evaluate whether management’s assumption of continuity is reasonable.

Global and regional failures show the damage caused when risks are overlooked. For Jamaican and Caribbean businesses, vulnerabilities such as small market size, external shocks, and governance weaknesses heighten the importance of robust going concern evaluations.

At Dawgen Global, we combine technical compliance with contextual intelligence, technology, and governance insight to ensure going concern evaluations serve not just regulators but all stakeholders.

Going concern is about survival and trust. With Dawgen Global, both are protected.

📌 Call to Action

📞 Concerned about your company’s going concern status?

👉 Connect with Dawgen Global for a free consultation or request a tailored proposal to strengthen your financial resilience.

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