NFRA flags gaps in going concern audits, asks auditors to challenge forecasts, funding claims
Aug 24, 2026
NFRA Chairperson Nitin Gupta has flagged gaps in auditors’ assessment of companies’ ability to continue as a going concern, saying audit files do not always show how management assessments were evaluated before auditors reached their conclusions.
The National Financial Reporting Authority (NFRA) has raised concerns over the way auditors assess going concern, with particular focus on cash flow projections, management assumptions, audit documentation and financial support promised by promoters or parent companies.
Speaking at an NFRA webinar on Standard on Auditing (SA) 570 (Revised), Going Concern, Nitin Gupta, Chairperson of the NFRA, said audit files can contain management’s assessment and the auditor’s final conclusion without adequately demonstrating the work and evaluation connecting the two.
“The difficulty is rarely seen in the conclusion itself. What is less often apparent is the work by which such conclusion was arrived at,” Gupta said.
The webinar featured audit professionals CA Guru Prasad and CA Aniruddh Sankaran, with Madhuri Shahapure, principal consultant at NFRA, moderating the discussion.
Cash flow projections under scrutiny
Gupta highlighted management prepared cash flow projections as an area requiring greater auditor scrutiny.
He said auditors need to assess the reliability of the underlying data as well as the assumptions used in preparing projections. Simply retaining management’s projections in the audit file, without evidence of such evaluation, would not adequately support the auditor’s conclusion.
The issue becomes particularly important where a company’s ability to meet its obligations depends on future cash flows, funding arrangements or the successful implementation of management plans.
During the panel discussion, CA Aniruddh Sankaran said auditors need to challenge management’s assumptions and assess whether the plans underlying forecasts are realistically achievable.
He also stressed the importance of considering management’s track record in delivering on earlier projections and documenting the discussions and evidence obtained during the audit.
For companies with newer or rapidly changing business models, auditors may also need to look beyond the numbers and understand the underlying business assumptions driving the projections.
Promoter support cannot be taken at face value
NFRA also flagged reliance on financial support from parent companies and promoters.
Gupta said auditors need to distinguish between an intention to provide financial support and the ability to actually provide it.
“Intent to provide such support is frequently documented but the ability to provide it is not examined with comparable vigor,” he said.
The observation puts the focus on whether auditors have obtained sufficient evidence to establish that promised financial support can realistically be made available when required.
The panel discussion examined how auditors should assess such support. Guru Prasad said auditors need to look beyond a promoter’s stated intention and examine the source and purpose of proposed funding.
A support letter, term sheet or other funding document may form part of the audit evidence, but auditors still need to assess whether the proposed funding can actually be made available and whether the underlying business plan is viable.
The assessment can become more challenging when support is expected from individual promoters, as the auditor may have less independently audited financial information available on their financial capacity.
Rigor must precede documentation
Gupta also stressed that audit documentation cannot substitute for substantive audit work.
“Rigor must precede the documentation,” he said.
He cautioned that documenting a weak or incomplete assessment can create a false sense of security rather than strengthen the audit conclusion.
The audit file should demonstrate the evidence considered, the challenges made to management’s assessment and the professional judgment applied before the auditor reaches a conclusion.
The panel discussion similarly emphasised that documentation should reflect the auditor’s actual work and reasoning rather than become a compliance exercise undertaken after the substantive audit work.
Going concern cannot be a checklist exercise
NFRA also cautioned auditors against applying audit methodology mechanically.
Gupta said audit methodologies can provide a framework for auditors, but the circumstances of the individual entity must determine the extent and nature of the assessment.
“A firm's methodology can prescribe the steps to be taken but it cannot determine how far a step should be pursued in real life circumstances of that particular entity,” he said.
He added that the circumstances of the entity must be a significant factor in applying methods and analytical procedures.
The panel discussion also stressed that audit methodology should not replace professional skepticism and judgment.
This becomes particularly relevant for companies with different business models, levels of leverage, funding structures or financial stress. A standardised approach may not adequately capture entity specific risks surrounding a company’s ability to continue operations.
Forecasts need a reality check
The panel discussion also focused on the challenges of assessing forecasts, particularly for companies with new or rapidly evolving business models.
Guru Prasad said auditors need to examine whether assumptions behind forecasts are realistic instead of simply checking the mathematical accuracy of projected numbers.
Where management expects a sharp increase in customers, capacity or revenues, auditors need to understand the business rationale supporting those expectations and assess whether the assumptions are consistent with available evidence.
The discussion also highlighted the importance of considering past performance, current financial conditions and developments that could affect management’s plans.
Going concern assessment needs continuous attention
Going concern is inherently forward looking and requires auditors to remain alert throughout the audit.
Gupta said changing business models, episodic funding requirements and developments that can alter a company’s prospects have made going concern assessments increasingly demanding.
The assessment is not limited to whether an entity has adequate liquidity on the reporting date. Auditors also need to consider future cash flows, financing requirements, business plans and other circumstances that could affect the entity’s ability to continue operations.
Aniruddh Sankaran said going concern should be considered from the planning stage and revisited as the audit progresses and new evidence becomes available.
He also noted that the absence of obvious going concern indicators does not mean auditors can disregard the assessment.
Generic disclosures also a concern
NFRA also raised concerns over disclosures relating to material uncertainty around going concern.
Gupta said reporting should provide information that enables users of financial statements to make informed decisions.
“If the same language that could be transferred from one entity to another without any alteration is used, the reporting has not achieved its desired purpose,” he said.
The concern is that generic or boilerplate disclosures may fail to explain the specific circumstances giving rise to uncertainty at an individual company.
Auditors therefore need to ensure that reporting is sufficiently specific to the entity and provides users with meaningful information about the circumstances and uncertainties involved.
Focus on implementation of SA 570
Gupta said NFRA’s stakeholder outreach is intended to help practitioners understand the practical application of auditing standards and narrow the gap between the requirements in the standards and their implementation in practice.
“Our purpose is not to add to the volume of requirements that the profession already deals with but to narrow the distance between the requirements as they are written in the standards and they are implemented in practice,” he said.
The webinar’s broader message was that a going concern conclusion cannot rest solely on management projections, a support letter or a completed audit checklist.
NFRA’s focus is on ensuring that auditors can demonstrate the evidence, challenge and professional judgment that underpin their conclusions, while the panel discussion provided practical perspectives on testing forecasts, assessing funding capacity and applying SA 570 to the specific circumstances of each entity.
[ET CFO]
