Directors of every company, however small, must assess whether it is appropriate to prepare the accounts on a going concern basis, looking at least 12 months ahead from the date the accounts are approved. The basis is appropriate unless the directors intend to liquidate the company or stop trading, or have no realistic alternative. Under FRS 102, including Section 1A for small companies, periods beginning on or after 1 January 2026 also require a going concern statement and disclosure of any material uncertainty.

What does going concern mean in a set of accounts?

It is the assumption that the business will carry on operating for the foreseeable future, so assets are recorded on the basis that they will be used in the business rather than sold off in a hurry. Company law builds the assumption in: paragraph 11 of Schedule 1 to the Small Companies and Groups (Accounts and Directors’ Report) Regulations 2008 states that the company is presumed to be carrying on business as a going concern.

FRS 102 paragraph 3.8 defines the test. An entity is a going concern unless management either intends to liquidate it or to cease trading, or has no realistic alternative but to do so. FRS 105 for micro entities uses the same test. The FRC’s Factsheet 13 (September 2025) stresses that the threshold for departing from the going concern basis is very high, because realistic alternatives to liquidation often exist even when they depend on uncertain future events.

Who is responsible for the assessment?

The directors. Factsheet 13 says that all companies, including small companies and micro entities, must assess the appropriateness of the going concern basis when preparing their accounts. This links to the directors’ duty under section 393 of the Companies Act 2006 not to approve accounts unless they give a true and fair view.

In owner managed companies there is often no independent review. The factsheet accepts that small companies may rely on the directors’ detailed knowledge of the business, documented less formally than in a large company, but says the assessment should still be robust, documented and given enough time. An accountant preparing the accounts can help gather the evidence, but the conclusion belongs to the board.

How far ahead must directors look?

FRS 102 paragraph 3.8 and FRS 105 paragraph 3.3 both require management to take into account all available information about the future, which is at least, but is not limited to, 12 months from the date the accounts are authorised for issue. That is 12 months from approval, not from the year end. Factsheet 13 says 12 months is a minimum, not a cap. A longer period may be needed if significant events fall just beyond it, such as a large loan repayment, a covenant test, a big capital commitment or the expiry of a key contract or licence.

What should the assessment cover?

Factsheet 13 suggests a budget, trading estimate or cash flow forecast covering the assessment period, checked against how accurate previous forecasts turned out to be. It lists internal and external factors to consider, including:

  • expected sales volumes and prices, and costs of materials, energy and labour;
  • working capital, cash balances and the availability of borrowings;
  • compliance with loan covenants, interest rates and alternative sources of finance;
  • failure of a major customer or supplier, and business disruption including cyber threats;
  • contingent liabilities from claims, capital commitments and changes in tax rates.

For small companies the factsheet highlights the risk of lenders withdrawing support and the loss of a key customer, supplier, employee or licence. Where the company depends on its owner, for example through a director’s loan that must stay in place or a personal guarantee, the directors should consider whether the owner can actually provide that support and keep documentation of it. Group companies should consider whether the parent can and will support them. A simple sensitivity test, changing the most critical assumption such as sales growth, is suggested even for straightforward cases.

A recurring item in owner managed company forecasts is tax. If cash flow depends on spreading a Corporation Tax or PAYE bill, the forecast should reflect a realistic Time to Pay arrangement, not an assumed one.

What must the accounts disclose?

Situation FRS 102 (including Section 1A from 2026) FRS 105
Going concern basis used, no material uncertainty State that fact and confirm the directors have considered information about the future (paragraph 3.8A); disclose significant judgements No specific disclosure required
Material uncertainty exists Disclose the uncertainty (paragraph 3.9) No specific requirement, but any voluntary disclosure must follow FRS 102 Section 1A
Going concern basis not used Disclose that fact, the basis used and why (paragraph 3.9) Disclose if the company is being wound up (paragraph 3.13A)

Paragraph 1AC.2C brings paragraphs 3.8A and 3.9 into Section 1A, so small companies preparing accounts for periods beginning on or after 1 January 2026 must include them. Factsheet 13 says material uncertainty disclosures should describe the principal events or conditions and the directors’ plans to deal with them, specific to the company. It also notes that a loss making company with net liabilities might need to disclose ongoing owner support as a key assumption to give a true and fair view. More on the standard itself is in FRS 102 explained and FRS 105 and micro entity accounts.

What happens if the company is not a going concern?

FRS 102 paragraph 32.7A says the accounts must not be prepared on a going concern basis if, after the year end, management decides to liquidate or cease trading or has no realistic alternative. Paragraph 32.7B explains that this is not an adjustment to individual figures but a fundamental change in the basis of accounting. FRS 105 does not prescribe the alternative basis; Factsheet 13 says that is for the directors to determine. Where a company is heading for closure, the tax side is covered in closing a limited company.

What does the auditor do?

For audited companies the auditor evaluates the directors’ assessment under ISA (UK) 570 Going Concern. The version currently in force is ISA (UK) 570 (Revised September 2019), updated in September 2025. The FRC published a further revision on 30 April 2026, ISA (UK) 570 (Revised March 2026), which applies to audits of periods beginning on or after 15 December 2026. Most small companies are audit exempt, so in practice the directors’ own assessment is the only one made.

How does going concern connect to wrongful trading?

Section 214 of the Insolvency Act 1986 lets a liquidator ask the court to order a director to contribute to the company’s assets if, before the winding up, the director knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation or administration. The defence is that the director took every step to minimise potential loss to creditors that they ought to have taken. Directors are judged against a reasonably diligent person with the general knowledge, skill and experience expected of someone in their role, and their own. A documented going concern assessment is often the clearest evidence of what the directors knew and when. See also directors’ tax responsibilities.

What does an assessment look like in practice, and what goes wrong?

Illustration only. A company with a 31 December 2026 year end approves its accounts on 30 June 2027, so the minimum assessment period runs to 30 June 2028. Its £100,000 bank loan is due for repayment in September 2028. Because that repayment falls shortly after the minimum period, the directors extend their forecast to cover it, ask the bank about refinancing, and decide whether the uncertainty is material enough to disclose.

  • Measuring 12 months from the year end instead of from approval.
  • Copying last year’s going concern sentence without a new assessment.
  • Assuming micro entities are exempt from the assessment because they are exempt from the disclosure.
  • Relying on owner support without considering whether the owner can provide it.
  • Ignoring events after the year end that change the picture before approval.

Solar Protect provides tax investigation insurance for businesses and fee protection schemes for accountancy practices. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.