Going Concern Review: Build a Cash-Flow Evidence File

A company has ₹10 lakh cash, overdue borrowing and uncertain customer collections. The useful result is a working that explains the facts, the calculation or classification, and the evidence behind the conclusion. This guide shows how to prepare that working and where a reviewer should investigate before accepting the result.

Scope and applicable period

Indian company or LLP compliance, as identified in the article, with FY 2025–26 illustrative records. Use the current notified rules and relevant form for the actual reporting period.

Verification date: 11 October 2026. Figures and rates identified as assumptions are teaching examples; apply the stated conditions and the actual facts to a real assignment.

The key principle

Going concern is assessed from the entity’s ability to continue operations and the evidence supporting management’s plans. Profit alone does not establish liquidity, and a loss alone does not decide the conclusion. Analyse cash flows, financing terms and events after the reporting date under the applicable accounting framework; auditors assess the evidence under the relevant auditing standard.

Worked example

A ₹4 lakh shortfall must be linked to a credible remedy, such as an evidenced facility or realistic collection plan. A draft loan request is weaker evidence than an approved, usable facility with satisfied conditions. Stress-test delayed collections and reduced sales, and distinguish management’s intention from its ability to execute the plan. Record the assessment period required by the framework and consider events known before authorisation of the statements. Explain material uncertainty and disclosure implications with the auditor rather than hiding the gap in a balancing cash line.

A practical sequence

Forecast monthly cash receipts and payments over the required assessment period, using supported collection and financing assumptions. Reconcile debt repayments, covenants and available facilities with contracts.

Run realistic downside scenarios and evaluate management’s ability to implement remedies. Document the conclusion and any required material-uncertainty disclosure.

Update the assessment for significant information available before approval; an old forecast should not remain the only evidence after material facts change.

Build one evidence file with separate legal conclusions

Corporate compliance often uses the same source records as the accounts, but each filing, approval and auditor-reporting requirement has its own purpose. Establish the entity type and applicable rules before selecting a form or threshold. Reconcile submitted figures to approved source records and retain the actual acknowledgement. Keep accounting recognition, statutory approval and filing status separate in the working. A completed form does not establish that the underlying transaction was properly authorised or correctly accounted for. Review changed ownership, contracts and business facts instead of carrying forward last year’s conclusion without support.

Evidence checklist

Keep the following records linked to the same entity, period and working version. Identify missing items explicitly; a checked box should mean the document was examined and supports the stated conclusion.

• Monthly cash-flow forecast
• Borrowing agreements and covenants
• Receivable collection evidence
• Management plans and approvals
• Post-reporting-date developments

Common mistakes and how to avoid them

• Counting restricted cash as available. Compare the conclusion with the monthly cash-flow forecast and resolve any conflicting facts.
• Assuming an unapproved facility is certain. Trace the affected item to the receivable collection evidence before finalising the working.
• Using accounting profit as a liquidity forecast. Use the post-reporting-date developments to make the final position and remaining exceptions clear.

Before you finalise

Recheck the example’s assumptions against the actual assignment, resolve the identified exceptions and make the final figure or conclusion traceable to its source. Preserve the reviewed version and the reason for material changes. For this task, the post-reporting-date developments should agree with the conclusion presented to the client, reviewer or authority.

Frequently asked question

Does a shortfall automatically mean accounts cannot use going concern? No. Assess severity, credible mitigating plans and disclosure requirements from the complete facts.

Sources and further reading

• ICAI AS 1 — Disclosure of Accounting Policies
• ICAI — Standards on Auditing and related resources

Related guide: Cash flow statement indirect method worked example as3.