Going concern: test management financing plans against evidence
A going-concern disclosure often lists management actions intended to address a funding gap. Test whether those actions are executable within the relevant period and whether their cash benefits overlap. The deliverable is a financing-evidence table that separates signed, conditional and aspirational sources of liquidity.
Read management and auditor conclusions separately
PCAOB AS 2415 addresses an auditor’s consideration of an entity’s ability to continue as a going concern in its applicable US audit setting. Management’s accounting assessment has its own framework and evaluation period. IFRS and other audit standards use different requirements; do not transplant one horizon or conclusion into another regime.
Record the financial statement date, authorization or issuance context, assessment horizon and exact conclusion. A going-concern explanatory paragraph is not necessarily an adverse opinion on the financial statements. Equally, the absence of such a paragraph is not a guarantee that the company will remain viable.
Hypothetical funding plan
Assume a company has 15 million of unrestricted cash, 40 of obligations falling due during the relevant period and an expected 10 operating cash outflow. Management identifies a 25 equity raise, a 20 asset sale and 8 of cost savings. The unmitigated arithmetic gap is 35: 40 + 10 - 15.
Suppose only the asset sale is signed, subject to buyer financing; the equity raise is under discussion; and half the savings require a restructuring payment. Adding all 53 as assured liquidity would be unsupported. Record conditions, earliest receipt date and upfront cash costs before judging the mitigating plan.
Also check whether the asset sale removes cash-generating operations already included in the operating forecast. Counting sale proceeds while retaining all associated future cash earnings can double count the benefit. The scenario is hypothetical and does not estimate any real issuer’s survival probability.
Copy the financing-evidence table
Use rows for cash source or mitigation. Include amount, legal counterparty, binding status, conditions, external approval, expected date, upfront cost, evidence and effect on the operating forecast. Mark whether a measure is within management’s control or depends on another party.
For an undrawn facility, verify covenants, borrowing-base availability and expiry. A lender’s general expression of support is not the same as an enforceable commitment. For shareholder support, read amount, duration, conditions and the supporter’s demonstrated capacity where public. Keep unverified capacity as a separate limitation.
Observe execution rather than reassurance
Review actual fundraising receipts, sale closing, covenant amendments and cash savings against the stated timetable. A signed agreement can improve evidence without eliminating execution risk. An extension can buy time while leaving the underlying funding gap unresolved.
Distinguish management’s stated plan, the auditor’s assessment and the analyst’s scenario. If public data do not support a complete monthly cash forecast, say which timing information is absent. Do not turn annual totals into a claim that every intermediate payment can be met.
The final note should show the unmitigated need, supported mitigations and remaining conditional amount. This makes the disclosure actionable for research without presenting a bankruptcy prediction or implying that an audit report certifies future funding.
FAQ
Does an unqualified opinion remove going-concern uncertainty?
No. The opinion and the going-concern discussion address different aspects of the audit report. Read the explanatory language and underlying financial statement disclosure rather than relying on the opinion label alone.
Can a planned capital raise count as available cash?
Show it as conditional until the relevant commitments and receipt evidence support availability. A credible plan can matter, but its status and timing should remain explicit in the funding table.