Going concern and business continuity in times of economic uncertainty

The economic situation in Germany is currently characterized by great uncertainty. Following global crises such as the COVID-19 pandemic and the conflict in Ukraine, many companies now find themselves in a difficult economic environment. This is particularly evident in the rising number of corporate insolvencies and the associated uncertainty about the continuation of business activities. The Federal Ministry for Economic Affairs and Climate Protection reports 21,812 corporate insolvencies for 2024, an increase of around 22.4% compared to the previous year. This particularly affects small and medium-sized enterprises, which are facing ongoing supply chain problems, higher interest rates, and rising energy prices.

The ifo Institute survey from spring 2025 shows that a significant number of German companies expect financial bottlenecks in the coming six months. This reflects the increasing uncertainty within the German economy, which poses a challenge for the companies affected and raises the question of whether they will be able to maintain their business activities and whether the going concern assumption for the preparation of the annual financial statements is actually valid.

This increasing uncertainty is of central importance for the audit of annual and consolidated financial statements under commercial law, as according to Section 252 (1) No. 2 of the German Commercial Code (HGB), these financial statements must be prepared on the assumption that the company will continue as a going concern, unless actual or legal circumstances indicate otherwise, and this must therefore be verified by the auditor. But how is the going concern assumption assessed in times of economic instability? And what impact does uncertain business continuity have on the audit results and the final report?

1.    Going Concern – Term Definition
The term “going concern (GC)” refers to the assumption that a company can continue its business activities in the foreseeable future without being liquidated or significantly restricted in the near future. The GC assumption is a fundamental prerequisite for the preparation of annual financial statements, as it can have a significant impact on the accounting and valuation of assets and liabilities. If the GC assumption is deemed to be inaccurate, both the company preparing the financial statements and the auditor must take this into account in the final report and present it appropriately.

According to the German Commercial Code (HGB) (and also according to IFRS), management must review the company's ability to continue as a going concern in the course of preparing the financial statements. If there are any doubts, a detailed explanation of how the company is to continue must be provided. According to IDW PS 270 (new version), the auditor must critically assess this assessment. If there are serious doubts about the company's ability to continue as a going concern, this may result in a limited or even adverse audit opinion.

2.    Potential risk factors with regard to the GC assumption
In times of economic uncertainty, companies are exposed to numerous risks that can jeopardize the going concern assumption. In the specialist literature, a distinction is made between financial, operational, and other events or circumstances with regard to risk factors. Examples of risk factors include the following:

• Financial: Fixed-term loan liabilities that are due without any realistic prospect of repayment or extension; long-term assets are financed by short-term loans; signs of withdrawal of financial support by creditors.

• Operational: Departure of key executives; loss of important sales/procurement markets or customers/suppliers; significant dependence on a single project

• Other: Violations of equity capital requirements or other legal regulations; pending legal proceedings with claims that are unlikely to be satisfied

3.    Requirements for going concern assessment
The assessment of the going concern assumption is generally the responsibility of management and the auditor. It is a central component of financial reporting and is essential for assessing whether a company can continue its business activities in the foreseeable future – generally over a period of at least twelve months from the balance sheet date. Management bears primary responsibility for assessing the company's ability to continue as a going concern. It must ensure that there are no actual or foreseeable circumstances that would prevent the continuation of business activities. In addition to financial risks, operational and other risks must also be taken into account. The assessment of the company's ability to continue as a going concern must be based on plausible assumptions and supported by reliable planning calculations and internal documentation. Transparent communication with the auditor is essential in this regard.

According to IDW PS 270 (new version), auditors are required to critically assess the going concern assumption. In particular, they must assess whether management has made appropriate and plausible assumptions and whether it can provide sufficient evidence for the assumptions made and the data used to support the going concern assumption. In addition, an analysis of the data sources used by the company is carried out. The auditor must therefore assess whether the company is likely to continue as a going concern or whether there are significant uncertainties that could cast doubt on its ability to continue as a going concern.

If risks jeopardize the company's ability to continue as a going concern, this must be disclosed transparently in the annual financial statements, particularly if management is planning or has already initiated measures to mitigate the risks, if the going concern forecast is based on assumptions whose occurrence is uncertain, or if there is significant uncertainty within the meaning of the accounting standard.

4.    Impact of GC uncertainties on audit opinion and report
If identified events or circumstances give rise to doubts about the going concern assumption, these have a direct impact on the auditor's opinion and report. The auditor must assess the appropriateness of the going concern assumption and, if necessary, explain any consequences in the audit report:

• Unqualified audit opinion: If there is no doubt about the going concern assumption, the auditor issues an unqualified audit opinion. The GC assumption is considered reasonable and accurate, and the financial reporting is considered proper.

• Qualified audit opinion: If there are significant doubts (e.g., liquidity bottlenecks or unresolved financing), this is noted in the audit report. Depending on the severity of the uncertainty, this can lead to a modified, qualified, or even adverse audit opinion.

• Required disclosure in the annual financial statements: Even with an unqualified audit opinion, the company must disclose existing risks and planned measures to ensure continuity transparently in the annual financial statements in order to enable stakeholders to make a realistic assessment.

5.    Conclusion
For management, assessing the GC assumption means much more than a purely formal accounting requirement—it is a strategic touchstone for the future viability of the company. In economically challenging times, it is essential to regularly and critically review your own liquidity position, financing structure, and operational resilience. The GC forecast becomes a reflection of corporate planning and risk management.

A well-founded going concern forecast not only strengthens the informative value of the annual financial statements, but also has a direct impact on their credibility and can significantly influence stakeholder confidence. A modified or limited audit opinion due to uncertainty about the company's ability to continue as a going concern can undermine confidence in the long-term stability of a company and thus have a negative impact on share prices, creditworthiness, and business relationships.

Consequently, GC assessment is a key component of the annual audit, especially in times of economic uncertainty. Auditors must increasingly factor risks from global crises, such as geopolitical tensions and inflation, into their assessments. This requires careful analysis and transparent disclosure of uncertainties in order to maintain stakeholder confidence. It also requires auditors to continuously adapt their methods for identifying potential threats in order to meet new challenges.

The regulatory requirements for GC assessment are complex – but with professional support and the right methodological approach, risks can be identified early on and addressed in a targeted manner.

If you need assistance in preparing a GC forecast, please contact our team of experts.

^{1 https://www.destatis.de/DE/Themen/Branchen-Unternehmen/Unternehmen/Gewerbemeldungen-Insolvenzen/_inhalt.html and https://www.ifm-bonn.org/statistiken/gruendungen-und-unternehmensschliessungen/unternehmensinsolvenzen#:~:text=Laut%20Insolvenzstatistik%20des%20Statistischen%20Bundesamtes,sind%20aktuelle%20und%20fr%C3%BChere%20Krisen}