A going concern is a business expected to keep operating for the foreseeable future. Under FRS 102 an entity is a going concern "unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so". UK company law presumes it, and directors must test it, looking at least 12 months from the date the accounts are approved. If they cannot support it, the accounts must be prepared on a different basis.
What going concern means in accounts
Almost every set of accounts is prepared on the going concern basis. Assets are carried at cost or value in use on the assumption that the business will keep using them, and liabilities are shown as falling due on their normal terms. The accounting regulations for both small and large companies state the principle directly: "The company is presumed to be carrying on business as a going concern."
Going concern is therefore a basis of preparation, not a forecast of success. A loss-making company can still be a going concern if it has the finance and a credible plan to carry on. A profitable company can fail the test if a lender has demanded repayment that it cannot meet.
Who makes the assessment and over what period
The directors make it, not the auditor. FRS 102 paragraph 3.8 requires management to "make an assessment of the entity's ability to continue as a going concern" and to take into account all available information about the future, "which is at least, but is not limited to, 12 months from the date when the financial statements are authorised for issue".
The period runs from approval, not from the year end. Accounts for a 31 December 2025 year end approved on 30 September 2026 need an assessment running to at least 30 September 2027, 21 months after the balance sheet date.
For accounting periods beginning on or after 1 January 2026, FRS 102 paragraph 3.8A requires an entity using the going concern basis to disclose that fact, confirm that management has considered information about the future as set out in paragraph 3.8, and disclose any significant judgements made. Small entities applying Section 1A must give the 3.8A and 3.9 disclosures too.
Material uncertainty
The basis can be appropriate even when there is real doubt. ISA (UK) 570 defines a material uncertainty related to going concern as an uncertainty about events or conditions that "may cast significant doubt on the entity's ability to continue as a going concern". Typical triggers include:
- Financing. A facility expiring within the assessment period with no agreed renewal, or covenants likely to be breached;
- Trading. Sustained losses, net current liabilities or the loss of a major customer;
- Creditors. Arrears with HMRC or suppliers, or legal claims the company could not meet;
- Group support. Reliance on a parent that may not be able or willing to provide it.
Where such an uncertainty exists but the directors still conclude that the business will continue, FRS 102 paragraph 3.9 requires them to disclose it. The going concern basis stays; the reader is warned.
When the going concern basis no longer applies
If management intends to liquidate or stop trading, or has no realistic alternative, the accounts cannot be prepared on a going concern basis. FRS 102 paragraph 32.7A extends this to decisions made after the reporting period: a decision to close after the year end, but before the accounts are approved, removes the basis for that year too. The entity must disclose that fact, the basis it has used instead and why it is not regarded as a going concern. Paragraph 32.7B describes this as a fundamental change in the basis of accounting, not an adjustment to the amounts already recognised, so assets and liabilities have to be looked at afresh on the new basis.
Going concern is related to insolvency but is not the same test. A company can be balance-sheet insolvent and still be a going concern if a parent or lender is committed to supporting it. Our guide what is insolvency? covers the legal tests.
What the auditor does
For audited companies, ISA (UK) 570 requires the auditor to conclude on whether management's use of the going concern basis is appropriate and whether a material uncertainty exists. If management's assessment covers less than twelve months from the date of approval, the auditor must ask management to extend it. The auditor's report then contains one of three outcomes:
- Conclusions relating to going concern. The basis is appropriate and no material uncertainty was identified. Under the revised standard this section is headed "Going Concern" and adds a statement that the conclusions are not a guarantee;
- Material Uncertainty Related to Going Concern. An unmodified opinion with a separate section, where the uncertainty is adequately disclosed;
- Qualified or adverse opinion. Where a material uncertainty exists but is not adequately disclosed.
A revised ISA (UK) 570 (Revised March 2026) applies to audits of periods beginning on or after 15 December 2026, with more detailed requirements on evaluating management's method, assumptions and data. Companies reporting on the UK Corporate Governance Code also make a going concern statement under Provision 30 and a longer-term viability statement under Provision 31.
Worked example: a facility renewal
A manufacturer with a 31 March 2026 year end plans to approve its accounts on 31 August 2026, so its assessment must run to at least 31 August 2027. Its £1.2 million revolving credit facility expires in March 2027 and the bank has not yet confirmed renewal. Monthly cash flow forecasts show headroom under the facility, but none without it.
The directors can still use the going concern basis if they reasonably expect renewal. Without written support from the bank, however, the dependency is likely to be a material uncertainty that must be disclosed, and an auditor would then include a Material Uncertainty Related to Going Concern section. Obtaining a renewal or a term sheet before approval often removes the issue.
The primary references are FRS 102 paragraphs 3.8 to 3.9 and 32.7A, ISA (UK) 570, the Small Companies Regulations, Schedule 1 paragraph 11, and the UK Corporate Governance Code 2024. For forecasting technique, see our guide to cash flow monitoring.
A well-built cash flow forecast is the evidence behind every going concern conclusion. Our financial modelling team can build or stress-test one, and our statutory audit service covers the auditor's side of the assessment.