A business can report a profit and still face a cash shortfall. A major customer may delay payment, a revolving credit facility may expire, a covenant may be breached, or a planned refinancing may not close on time. These conditions can put the going-concern assumption under pressure even when the latest income statement looks healthy.
For controllers, a going-concern assessment is not a year-end formality or a statement that management expects the business to survive. It is a structured, evidence-based evaluation of whether the entity can continue meeting obligations as they fall due, using the applicable financial-reporting framework. It also requires a clear record of adverse conditions, management’s plans, the feasibility of those plans and the disclosures that follow.
This article sets out ten practical controls for US and Canadian finance teams. It distinguishes the requirements in US GAAP, IFRS Accounting Standards and Canadian ASPE; the assessment periods and disclosure thresholds are not identical.
Why a going-concern assessment needs a control process
Warning signs rarely appear in one ledger account. They can be spread across cash forecasts, accounts receivable aging, supplier holds, payroll commitments, debt schedules, legal correspondence, capital expenditure plans and operational forecasts. A controller who relies only on the trial balance or a management representation may miss the combined effect.
Examples of indicators that warrant assessment include recurring operating losses, negative operating cash flows, a working-capital deficit, overdue debt, covenant non-compliance, loss of a key customer or supplier, reduced trade credit, a major uninsured loss, or dependence on financing that has not been committed. These are indicators to investigate—not automatic proof that an entity is not a going concern. FASB’s guidance emphasizes considering relevant conditions and events in the aggregate and weighing their likelihood, magnitude and timing.
Know the framework and assessment horizon
US GAAP: ASC 205-40
Under ASC 205-40, management evaluates conditions and events at each annual and interim reporting date that are known and reasonably knowable as of the date the financial statements are issued, or are available to be issued when applicable. The assessment looks one year beyond that issuance or available-to-be-issued date. Substantial doubt exists when the conditions and events, considered in the aggregate, indicate it is probable the entity will be unable to meet obligations as they become due in that period.
The initial evaluation is made before considering the mitigating effect of management plans that have not been fully implemented. If substantial doubt is raised, plans are considered only when it is probable they will be effectively implemented and probable they will mitigate the relevant conditions. Disclosure is required both when substantial doubt is alleviated by management’s plans and when it is not; the latter requires an explicit statement that substantial doubt exists. See FASB ASU 2014-15, which established Subtopic 205-40. The Codification, rather than the ASU summary itself, is the authoritative US GAAP source.
IFRS Accounting Standards
Management assesses the entity’s ability to continue as a going concern when preparing annual and interim financial statements. The assessment considers all available information about the future and looks at least 12 months from the end of the reporting period; the period is not capped at 12 months. If management is aware of material uncertainties related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, those uncertainties are disclosed.
There is an important upcoming reference change. IFRS 18 is effective for annual reporting periods beginning on or after January 1, 2027, with earlier application permitted. It replaces IAS 1 and moves the going-concern assessment requirements unchanged from IAS 1 to IAS 8, retitled Basis of Preparation of Financial Statements. The IFRS Foundation republished its going-concern educational material in May 2025 to reflect that change; the material explains requirements but does not amend them. See the IFRS Foundation’s May 2025 Going Concern—A focus on disclosure and the IFRS 18 standard overview.
Canadian ASPE
For private enterprises applying ASPE, going-concern guidance is included in Section 1000, Financial Statement Concepts, and Section 1400, General Standards of Financial Statement Presentation; it is not a standalone section devoted only to going concern. Section 1400.08 calls for management to consider all available information about the future for at least, but not limited to, 12 months from the balance-sheet date. Section 1400.17 addresses disclosure of material uncertainties that may cast significant doubt, while Section 1400.18 addresses disclosure when statements are not prepared on a going-concern basis. CPABC summarizes these provisions in its ASPE guidance on the going-concern assumption. Confirm the current CPA Canada Handbook requirements for the entity and reporting period.
Ten controls controllers should implement
1. Define warning indicators and escalation thresholds
Create a documented trigger matrix covering liquidity, profitability, debt, operations and external events. Include cash runway, forecast covenant headroom, overdue payroll or suppliers, customer concentration, credit insurance changes, facility expiry and material litigation. Define who must notify the controller, how quickly and what evidence is required. A trigger should initiate analysis—not predetermine the accounting conclusion.
2. Assign clear ownership across Finance and the business
The controller should coordinate the assessment, but no single finance team has all the facts. Treasury owns facility availability and lender correspondence; FP&A owns forecast mechanics; Sales validates pipeline and customer assumptions; Procurement and Operations assess supply continuity; Legal reports claims, guarantees and contract risks; and executive management approves strategic mitigation plans. Record each owner’s responsibilities and sign-off.
3. Use the correct assessment horizon and refresh it when facts change
Build a reporting calendar that records the applicable framework, reporting date, issuance or authorization date and required look-forward period. Do not use a generic “12-month forecast” without checking the framework’s starting point. Refresh the assessment when a major customer is lost, a facility is withdrawn, a covenant breach occurs, or a material event changes the outlook. Under IFRS, the minimum period is not a ceiling.
4. Prepare an integrated liquidity forecast
Use a near-term direct cash forecast supported by a longer-horizon integrated model linking profit and loss, balance sheet and cash flows. Include customer receipts by expected collection date, supplier payments, payroll, taxes, interest, capital spending, lease payments, debt maturities and other contractual obligations. Reconcile opening cash to bank and general-ledger records. Model the timing of cash, not just monthly revenue and EBITDA.
5. Capture obligations that may sit outside the trial balance
ASC 205-40 specifically calls for considering conditional and unconditional obligations due or anticipated in the assessment period, whether or not they are recognized in the financial statements. Finance should therefore obtain inputs on purchase commitments, guarantees, letters of credit, litigation, tax exposures, lease commitments, planned restructuring costs and other relevant cash requirements. Reconcile the obligation schedule to contracts, legal confirmations, debt agreements and operational plans.
6. Evidence that financing is genuinely available
Do not treat an unsigned term sheet, verbal lender support or an unapproved shareholder contribution as cash on hand. Inspect executed credit agreements, borrowing-base certificates, covenant calculations, renewal conditions, expiry dates, collateral requirements and restrictions on drawdowns. For parent or shareholder support, document the legal commitment, authorization, timing and provider’s ability to fund it. Consider whether cash is trapped in a subsidiary or restricted from transfer.
7. Challenge mitigation plans for feasibility and timing
For each plan—refinancing, equity injection, asset sale, cost reduction, working-capital release or operational turnaround—record the responsible owner, approval date, required third-party consents, execution milestones, expected cash impact and dependencies. Under ASC 205-40, the plan must meet the applicable probability tests before its mitigating effect can be considered. Under IFRS and ASPE, assess the feasibility and effectiveness of plans as part of the framework-specific judgment; do not import the US GAAP wording as if it were identical.
8. Link the conclusion to other accounting judgments
A going-concern conclusion does not automatically resolve asset impairment, inventory valuation, expected credit losses, provisions, debt classification or subsequent-event accounting. Identify which other balances and disclosures may be affected by the same assumptions. For example, a forecast that assumes a plant will close may also affect useful lives, impairment indicators, onerous contracts and restructuring assessments. Document those analyses separately under the relevant standards.
9. Protect data lineage and model changes in the ERP environment
In SAP S/4HANA or another ERP, reconcile the cash and obligation data used in the model to the general ledger, bank records, AP and AR subledgers, debt schedules and approved planning sources. Control mapping changes, manual uploads, foreign-currency rates, intercompany funding assumptions and user access. Preserve model versions, source extracts, formula checks, change logs and reviewer sign-offs. A dashboard is not evidence unless its underlying data and transformations are controlled.
10. Approve the conclusion and align disclosures
Prepare a concise assessment memorandum summarizing adverse conditions, scenarios, assumptions, mitigation plans, evidence, framework analysis, conclusion and required disclosures. Obtain approval at the appropriate management and governance level. Reconcile the memo to the financial-statement notes and, for SEC registrants, separately evaluate whether known liquidity trends, commitments or uncertainties require discussion in MD&A under applicable SEC requirements. Do not assume a note disclosure automatically satisfies MD&A.
Illustrative controller scenario
A Canadian subsidiary of a US group has a revolving credit facility that expires in nine months. Its base forecast shows adequate cash, but the downside case assumes a delayed customer renewal and slower collections. The lender has discussed a renewal but has not issued a committed offer. Management proposes reducing discretionary spending and selling unused equipment.
The controller should first quantify the cash shortfall and its timing without assuming that the proposed sale or refinancing will occur. Next, document the status of the lender process, asset-sale market evidence, approvals, expected proceeds and execution timetable. Evaluate the facts under the subsidiary’s ASPE statements and the group’s US GAAP reporting separately. If the parent provides support, obtain evidence of its commitment and capacity to perform. The conclusion should explain not just whether the forecast ends with positive cash, but whether obligations can be met when due and whether the mitigating actions are sufficiently feasible under the applicable framework.
Month-end and reporting checklist
| Review item | Evidence |
|---|---|
| Warning indicators reviewed | Trigger dashboard, minutes and escalation log |
| Forecast period and framework confirmed | Assessment calendar and accounting-policy reference |
| Cash forecast reconciled | Bank-to-GL tie-out, assumptions and scenario outputs |
| Obligations completeness tested | Debt, contracts, legal, guarantees and commitment schedules |
| Financing availability verified | Executed agreements, lender confirmations and covenant calculations |
| Mitigation plans challenged | Approvals, milestones, third-party evidence and quantified impact |
| Other accounting effects assessed | Impairment, valuation, classification and subsequent-event memos |
| Disclosure and governance completed | Approved memo, note checklist, MD&A review and sign-offs |
Conclusion
A defensible going-concern assessment is built from timely operational information, realistic cash forecasts, complete obligations and evidence that management’s plans can be executed. Controllers should make the process continuous enough to detect deterioration early and disciplined enough to support annual and interim reporting. Most importantly, apply the correct framework and assessment horizon: ASC 205-40, IFRS and Canadian ASPE share the going-concern concept but do not use identical tests or disclosure mechanics.
Sources and further reading
- FASB — ASU 2014-15, Going Concern (Subtopic 205-40), August 2014.
- IFRS Foundation — Going Concern: A Focus on Disclosure, republished May 2025.
- IFRS Foundation — IFRS 18, effective for annual periods beginning on or after January 1, 2027.
- CPABC — The Going Concern Assumption under ASPE.
- PCAOB — AS 2415, auditor consideration of an entity’s ability to continue as a going concern.
- SEC — Commission Guidance on Management’s Discussion and Analysis, Release 33-10751 (January 30, 2020; effective February 25, 2020).
Disclaimer: This article is for general informational purposes only and is not accounting, legal, tax or insolvency advice. Going-concern conclusions depend on the entity’s facts, applicable reporting framework and reporting period. Consult the current authoritative standards and qualified professional advisers for specific circumstances.
