Bulletproof Your AFS for Audit: The New Rules of Going Concern

16 May

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Big changes are coming to how auditors review “going concern” — and it’s going to affect how YOU prepare financial statements.

The International Auditing and Assurance Standards Board (IAASB) has updated ISA 570, the standard that tells auditors what to look for when assessing whether a business can continue operating in the near future — known as the “going concern” principle. The revised standard takes effect for audits of financial statements for periods starting on or after 15 December 2026.

While it’s written for auditors, it directly affects accountants in business and practice. Why? Because your forecasts, assumptions, and disclosures are what auditors will be testing — and the bar just got higher.

What’s Changing in ISA 570?

Under the revised standard, auditors will need to make more detailed evaluations of management's judgment around going concern. In particular, they will:

Assess whether management’s projections and assumptions are reasonable.
Scrutinize any mitigating actions, like cost reductions or borrowing arrangements.
Ensure that management’s going concern assessment covers a period of at least 12 months from the date the financial statements are approved.

If there’s any doubt, auditors must highlight the material uncertainty related to going concern in their report. Even if no material uncertainty is found, the auditors will still need to mention how they assessed management's judgment.

Management’s Assessment Is Required

In South Africa, management of a company has a clear duty to assess whether a business can continue operating for at least 12 months after the date of the financial statements. This isn’t optional—it’s required by ruling legislation and accounting standards. Section 29 of the Companies Act states that financial statements must fairly present the company’s financial position, which includes highlighting any risks to going concern. IFRS for SMEs (Section 3) goes further, requiring management to evaluate the business’s ability to continue and to clearly disclose any serious uncertainties. This responsibility applies whether the financials are compiled, reviewed, or audited. If this isn’t done properly, it could result in a qualified audit report—or worse, legal trouble.

How Does This Impact Your Work as an Accountant?

Going concern is not only an auditor’s headache but your role in preparing financial statements just got a lot more critical. Auditors will rely heavily on the groundwork you lay. If that foundation is shaky, the auditor might flag your company’s ability to continue operating and once that lands in an audit report, it’s hard to undo.

Below we explain what that means in your day-to-day work:

Clear Documentation (No more ‘thumb-suck’ forecasts)
✅ What’s expected: You need detailed, written support for your cash flow forecasts, assumptions, and “what-if” scenarios. This means:
- Explaining how you estimated future sales (e.g., historical data, signed contracts, market trends)
- Showing your assumptions on cost control, inflation, and financing
- Linking every major number to a reliable source (like loan agreements, board decisions, or supplier terms)
  🔍 Example: If you assume a 10% increase in sales next year, you’ll need to explain why. Is it due to a new customer contract? Market recovery data? Just saying “based on past growth” won’t cut it.
Stronger Assumptions (Optimism won’t pass the audit)
✅ What’s expected: Your forecasts must be realistic — not idealistic. Auditors will challenge:
- Are your revenue projections too rosy?
- Are cost savings actually achievable?
- Are your timing estimates for loan approvals or funding realistic?
  🔍 Example: If your business plans to cut R2 million in costs, be ready to show how — through what contracts, staff changes, or overhead reductions. Vague “cost efficiencies” won’t be enough.
Realistic Mitigation Plans (Hope is not a strategy)
✅ What’s expected: If your business is facing risks (e.g., supply chain issues, loss of a major customer), you need solid, actionable plans to deal with them:
- Cost reduction strategies
- New revenue streams
- Loan restructuring or confirmed funding sources
🔍 Example: Saying “we’ll secure funding” isn’t good enough. Show emails from banks, draft loan agreements, or letters of support from investors. The auditor wants to see intent and ability to act.
Extended Assessments (Think beyond the next few months)
When assessing going concern, management must consider not only the next 12 months but all available information up to the date the financial statements are authorised for issue. This means your analysis should include known developments after year-end that could impact the business’s ability to continue, such as funding delays, major customer losses, or market shifts. The assessment must reflect both short-term pressures and medium- to long-term risks, especially if the business depends on a few contracts, projects, or government funding.
✅ What’s expected: Your going concern analysis must cover at least 12 months from the approval date of the financials. If you only go 6 or 9 months out, that may not be enough.
🔍 Example: If your year-end is December 2026 and your board signs off in April 2027, your forecasts must run to at least April 2028. If you can’t justify that period, you’ll need to explain why — and show the risks of stopping short.
Disclosure Requirements
✅ What’s expected: If there are risks to going concern, management must clearly explain whether these risks have been fully resolved, partially mitigated, or remain material despite efforts. The level of disclosure in the financial statements should reflect the situation:
- If no material uncertainty exists, that should be clearly stated.
- If uncertainty exists but has been addressed through mitigation, disclose the risks, the actions taken, and why going concern still applies.
- If uncertainty remains, even after mitigation, this must be explicitly disclosed, along with the specific conditions and assumptions involved.
  All disclosures should be specific to the entity, not copied templates, and they should be approved by those charged with governance.
  🔍 Example: If you’re relying on a funding injection that’s not yet secured, that risk must be clearly stated. If not, the auditor may flag it under “material uncertainty” in their report — which can affect investor trust, creditworthiness, and even SARS attention.

The Next Steps

Review and Strengthen Your Going Concern Assessments
Look at the business’s financial health and forecasted performance. Are there cash shortfalls, high debt, or upcoming challenges? Identify them now — and plan responses.

Document Everything

Create a file with all backup documents: bank correspondence, supplier agreements, board minutes, budget notes, etc. If a number appears in your forecast, make sure it’s linked to a source.

Prepare for Tougher Questions
Auditors will want to know:
- Why do you believe the business will survive?
- What are your assumptions based on?
- What if things go worse than expected — are there backups?
- Be ready to explain and prove your reasoning.

In summary, if you're responsible for preparing financial statements, you’ll need to be ready to justify your assumptions, projections, and risk management strategies more clearly than ever before. Use the handy CIBA Going Concern Checklist for Accountants and make sure that your financial statements stand up to audit scruitiny.

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