For most audit teams, going concern is a familiar area. The fundamentals are well understood, ‘standard’ audit procedures are performed, and the disclosures often follow a predictable format. Yet file reviews continue to highlight weaknesses, particularly in documentation and the depth of challenge applied. This “top tips” article is designed to refresh your thinking and help you avoid common documentation pitfalls when auditing going concern.
Challenge and refresh your risk assessment
One of the most common issues when auditing going concern is that the focus is not on current events. Audit teams tend to roll forward prior-year risk assessments without properly reconsidering current conditions. Even where there is no obvious evidence of financial distress, the external environment may have shifted, especially in these volatile times. Consider the economic volatility, funding pressures, covenant sensitivity and dependence on key customers and suppliers
Top tip: Explicitly document how you reassessed risk this year. What has changed since last year? What economic factors or sector-specific developments did you consider? Even if your conclusion remains “low risk,” your documentation should evidence the assessment process.
Align procedures with the identified risk
Audit files sometimes show a disconnect between the assessed level of risk and the work performed. For example, where there is an elevated risk around going concern (e.g. tight liquidity headroom), procedures don’t always reflect sufficient professional scepticism.
Top tip: Tailor your procedures clearly to address your risk assessment. If you have identified risk indicators, such as reliance on short-term financing or covenant pressure, ensure your work programme includes robust sensitivity analysis, stress testing, and evaluation of mitigating actions. Sometimes the risk assessment can be flawed. Auditors highlight going concern related risks that simply aren’t there!
Sufficient scrutinising of management’s assessment
ISA (UK) 570 requires the auditor to conclude on “the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements.” A common file review point is that while auditors have seemingly concluded that a material uncertainty doesn’t exist, they haven’t obtained management’s own assessment of going concern and evaluated it.
Top tip: Think out of the box when it comes to understanding management’s assessment. Small owner-managed businesses won’t necessarily consider risks to the future of their business as going concern-related risk, but those risks are absolutely something they will consider. While not all clients produce sophisticated forecasts, auditors need to understand management’s plans and concerns for the next 12 months.
Don’t put too much reliance on letters of support
Letters of support remain a frequent feature of going concern assessments, particularly in group scenarios. While they are helpful for management and can be used as part of your audit evidence, file reviews regularly highlight over-reliance on such letters. Often there is insufficient auditor evaluation of the likelihood and ability of a parent company or others to provide the support. Remember that a letter of support is typically not a legally binding guarantee.
Top tip: Go further than just obtaining the letter. In addition, critically evaluate the financial ability of the supporting entity or individual to provide the support, using audited financial statements and cash flow forecasts, and consider the competing demands on resources, such as other subsidiaries.
Document clearly why you consider it appropriate to rely on the letter and include relevant audit evidence on file. If support is central to the going concern conclusion, your file should demonstrate robust challenge, not simple acceptance.
Document the material uncertainty judgement clearly
Where a material uncertainty exists regarding going concern, there are significant implications for the audit report. Where this is the case, deficiencies often arise in documenting the rationale for concluding that disclosure is adequate and that the audit report is appropriately adapted.
Top tip: Clearly articulate on file:
- The conditions giving rise to the uncertainty.
- Why the conditions are considered material.
- How the disclosures address those uncertainties.
Avoid generic wording. Tailor your documentation to the entity’s specific facts and circumstances.
Conclude with a structured, standalone summary
A common documentation weakness is the absence of a clear, structured overall conclusion. Instead, evidence can be scattered across the audit file. Remember, ISA (UK) 230 paragraph 8 states that the “the auditor is required to prepare audit documentation sufficient to enable an experienced auditor, having no previous connection with the audit, to understand the significant professional judgments made in reaching conclusions on significant matters arising during the audit”.
Top tip: Prepare a concise but comprehensive going concern summary at the end of the audit process that:
- Recaps the risk assessment
- Summarises key assumptions tested
- Explains any sensitivity analysis performed
- Evaluates mitigating actions
- Addresses disclosure adequacy
- States the final conclusion clearly
Final Thought: treat going concern as a judgement, not a checklist
The audit of going concern frequently requires the exercise of professional judgement. While standard audit procedures are important, regulators consistently focus on the quality of challenge, the depth of analysis, and the clarity of documentation.
Refreshing your approach each year, particularly around forecasting assumptions, liquidity analysis and documentation clarity, can significantly enhance audit quality. The aim is not more work, but the improved audit quality. When your documentation clearly shows how you identified risks, challenged management, evaluated evidence and reached your conclusion, you will be well positioned to withstand scrutiny.
Maya Norbury, March 2026
