Going concern after year end: when the accounting basis must change
A lender refuses replacement finance after year end but before the accounts are authorised. The first question is whether management still has a realistic way to continue trading. A material uncertainty can require disclosure while going concern remains appropriate. If management intends liquidation or cessation, or has no realistic alternative, a note cannot preserve the going-concern basis.
Reassess the basis before authorisation
This article concerns UK-adopted full IFRS accounts using IAS 1 without early adoption of IFRS 18. It addresses the accounting basis, rather than insolvency law, an audit opinion or a universal liquidation valuation method.
IAS 10 paragraphs 14 to 16 apply when management reaches the relevant conclusion after the reporting period. If liquidation or cessation is intended, or no realistic alternative remains, the accounts cannot use going concern. This is a change to the basis of preparation, not simply an adjustment to selected year-end balances.
IAS 1 requires disclosure of material uncertainties that may cast significant doubt on the entity's ability to continue. Such uncertainty does not automatically mean going concern is inappropriate. If another basis is used, disclose that basis and why the entity is not a going concern.
The same shortfall can lead to different conclusions
The following dates and £200,000 amount are hypothetical. The year ends on 31 March. Accounts remain unauthorised, with approval planned for 30 June. On 15 May, a lender refuses replacement finance, leaving a forecast £200,000 funding shortfall before a September debt repayment.
In the first case, management has a credible, feasible refinancing route, but completion remains uncertain. Management intends to continue trading and has realistic alternatives. Assume management judges that the remaining uncertainty may cast significant doubt. On that judgement, it retains going concern and discloses the material uncertainty. It must not describe uncommitted funding as money already secured.
In the second case, management exhausts every realistic financing and operating alternative. On 20 May it determines that cessation is unavoidable. The 31 March accounts must then use another basis, even though the lender's refusal occurred in May. Treating the news as a disclosure-only event would miss the basis decision.
The £200,000 shortfall is a forecast assumption, not a financial threshold in the standard. It does not automatically dictate a journal, a blanket write-down or a particular liquidation value. The selected basis and its measurement consequences need separate work.
| Evidence before authorisation | Basis and disclosure on the assumed judgement |
|---|---|
| Credible, feasible refinancing remains uncertain; realistic alternatives exist | Retain going concern and disclose the material uncertainty. |
| Realistic alternatives exhausted; management determines cessation is unavoidable | Use another basis and disclose that basis and why going concern is inappropriate. |
Support the alternatives with dated evidence
IAS 1 requires consideration of all available information about the future, covering at least twelve months from the reporting-period end and extending further where relevant. Profitability, debt repayment dates and replacement finance can matter. That minimum is not an assertion that every UK legal or governance requirement uses the same horizon.
An assessment should distinguish finance already available from funding that depends on approval, conditions or negotiation. Review repayment dates, forecast cash needs and supported downside assumptions. A hopeful application and an available facility provide different evidence.
Continue updating the assessment through the actual authorisation date. IAS 10 requires disclosure of when and by whom the accounts were authorised; the planned date does not close the evidence window early.
Record the conclusion that the accounts use
A suggested approval record should explain management's intention, the realistic alternatives considered and the evidence for each. State whether material uncertainties remain and make the disclosures match that conclusion.
If going concern is inappropriate, document the alternative basis and assess how it changes measurement before approval. If going concern remains appropriate despite material uncertainty, explain that uncertainty without presenting conditional funding as certain. The useful result is a supported decision about the basis itself, carried through into the accounts.