Going-Concern Early Warning

Going concern is the assumption underneath every set of financial statements — that the entity will keep operating for the foreseeable future. ISA 570 sets out the indicators auditors must assess, and GRAP 1 requires the going-concern assertion in the AFS. For public entities and SOEs, a going-concern qualification is among the gravest audit outcomes: it signals the entity may not survive without a bailout, with consequences for service delivery, guarantees and the fiscus.

The danger is that going-concern deterioration is gradual and easy to rationalise away until it is acute. Liquidity tightens, cash runway shortens, interest cover erodes — but on quarterly spreadsheets these signals are read in isolation and the composite picture never forms. By the time the board confronts it, the auditor is already drafting the going-concern paragraph and disclosure is being forced rather than chosen.

A composite early-warning score makes the trajectory visible early. It blends current ratio, liquidity, interest cover, cash runway, guarantee headroom and the eight ISA 570 indicators into a single 0–100 score, banded Watch, At-Risk and Critical, with Critical triggering mandatory disclosure to the Executive Authority and Audit Committee. Deterioration is surfaced quarters before it becomes a qualified opinion.