What does going concern mean in company accounts?
What does the going concern basis mean?
It means the accounts assume the business will carry on, paying its debts and using its assets in the normal way, for at least the next year. The law builds this in: the Small Companies Regulations state that "the company is presumed to be carrying on business as a going concern".
The assumption changes the numbers. On a going concern basis, a machine is shown at cost less depreciation because the company will keep using it. If the company were about to close, the same machine would be worth what a buyer pays at auction, stock might sell at a discount, and costs such as redundancy and lease termination would appear as liabilities.
Who decides, and over what period?
The directors decide, not the auditor or Companies House. Under FRS 102, the standard most UK private companies use, management assesses whether the company can continue as a going concern, looking at least 12 months ahead from the date the accounts are approved, not from the balance sheet date. A company is a going concern unless management intends to liquidate it or stop trading, or has no realistic alternative.
Three outcomes are possible:
| Directors' conclusion | What the accounts show |
|---|---|
| No significant doubt | Going concern basis, often a short accounting policy note |
| Going concern basis is appropriate, but a material uncertainty exists | Going concern basis plus a note describing the uncertainty |
| The company will cease trading or be liquidated | A different basis, such as a break-up basis, explained in the notes |
What does a material uncertainty note mean?
It means the directors still expect the company to continue but cannot rule out that it will not. FRS 102 requires the uncertainty to be disclosed. Typical wording mentions dependence on a bank facility that is up for renewal, continued support from a parent company or director, a large customer contract, or a pending sale of assets.
If the company is audited and the auditor agrees there is a material uncertainty, the audit report contains a separate section headed "Material uncertainty related to going concern". Most small UK companies are exempt from audit, so for them the directors' note is the only place the doubt appears.
Where do you find it in real accounts?
Look in the accounting policies note, usually the first or second note after the balance sheet. Search the document for "going concern", "material uncertainty" or "support". In micro-entity accounts there is often no note at all, because the micro-entity format requires very few notes, so silence does not prove there is no doubt.
Signals on the balance sheet
Across active companies whose latest machine-readable accounts are dated 1 January 2024 or later:
- 18.8% report negative net assets, meaning liabilities exceed assets (see the study).
- 36.2% report net current liabilities, meaning short-term creditors exceed current assets.
- Only 35.3% hold enough cash to pay all creditors due within one year.
None of these makes a company a non-going concern. Many trade for years with negative net assets because a director or parent funds them. They are reasons to read the note and ask who is supporting the company. Our figures come from the tagged balance sheet; we do not extract going concern wording, so the note itself still needs reading in the filed document.
How to use this when checking a company
- Find the going concern paragraph in the latest full or small accounts.
- If it relies on support from a parent or director, check that the supporter has the means: look at the parent's own accounts.
- Compare with the trend in net assets and current liabilities over the last three filings.
- Treat late accounts plus a material uncertainty note as a strong warning.
To see a company's balance sheet trend across past filings before you open the PDF, search the company.
Sources
- The Small Companies and Groups (Accounts and Directors' Report) Regulations 2008, Schedule 1, paragraph 11
- FRC: FRS 102, Section 3 Financial Statement Presentation (paragraphs 3.8 and 3.9)
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