Examples of going concern disclosures fall into two shapes under U.S. GAAP: one for when management’s plans fail to resolve substantial doubt about the company’s ability to keep operating, and one for when those plans succeed. Both require the footnote to describe the conditions that created the doubt and what management intends to do about them. Only the unresolved version requires an explicit statement that substantial doubt exists.
The samples below track the requirements in ASC 205-40. Read them first, then work backward to the elements they contain.
Sample Footnote: Substantial Doubt Not Alleviated
The Company has incurred recurring net losses and negative cash flows from operating activities totaling $15.4 million for the twelve months ended December 31, 2025. As of that date, the Company’s accumulated deficit was $38.7 million and its current cash balance of $2.1 million is projected to fund operations only through the second quarter of 2026. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
Management is actively pursuing several strategies, including the sale of non-core intellectual property assets and a private placement of equity securities. However, there can be no assurance that these measures will be completed on acceptable terms or will generate sufficient proceeds to meet the Company’s obligations as they come due. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The structure is deliberate. Quantified conditions come first, followed by the explicit statement of substantial doubt, followed by management’s plans with an honest acknowledgment that they may not succeed. The closing sentence about adjustments is standard practice and signals that assets and liabilities are still carried at going concern values despite the uncertainty.
Sample Footnote: Substantial Doubt Alleviated
During the year ended December 31, 2025, the Company violated the minimum debt-to-equity ratio covenant under its senior credit facility, a direct result of a significant inventory write-down recorded in the third quarter. This violation gave the lender the right to accelerate the outstanding balance of $42 million, which initially raised substantial doubt about the Company’s ability to continue as a going concern.
On February 1, 2026, the Company executed a new $50 million term loan agreement with Bank X. Proceeds from this facility were used to fully repay the senior credit facility, eliminating the risk of acceleration. The new agreement contains revised financial covenants that the Company expects to satisfy through the look-forward period. Management has concluded that the successful execution of this refinancing alleviates the substantial doubt previously identified. Accordingly, the financial statements have been prepared assuming the Company will continue as a going concern.
Even when the plans work, the footnote still opens with the problem. A reader should be able to understand exactly what went wrong before learning how it was fixed. Notice the specificity of the solution: the lender is named, the facility size is stated, the execution date is given, and the mechanism by which the original risk was eliminated is spelled out.
Required Elements of the Disclosure
A common misconception is that a going concern footnote is only required when doubt remains unresolved. GAAP requires disclosure in both scenarios; only the content differs.
When the Plans Do Not Resolve the Doubt
Three elements are mandatory:
- An explicit statement that substantial doubt exists about the entity’s ability to continue as a going concern. Euphemism does not satisfy this.
- A description of the principal conditions and events that created the doubt, quantified wherever possible. “Recurring losses” is too vague; a dollar figure, a period, and a projected cash-out date give a reader something usable.
- A description of management’s plans, even though they were deemed insufficient. This lets investors judge whether the strategies have any realistic chance.
Omitting any of these when substantial doubt exists is a departure from GAAP and can lead to a qualified or adverse audit opinion.
When the Plans Do Resolve the Doubt
Two elements are still required:
- A description of the conditions that initially raised substantial doubt, before the plans were considered.
- A detailed description of the plans that resolved the problem, specific enough to draw a clear line from the problem to the solution.
The explicit “substantial doubt exists” statement drops out here because the plans have effectively resolved it. What does not drop out is the underlying story. “Management obtained new financing” is not enough; the lender, the facility amount, the execution date, and how the proceeds address the underlying conditions belong in the footnote.
Conditions Typically Named in the Footnote
Effective disclosures quantify the problem rather than describing it in generalities. Recurring operating losses are the most frequent trigger, usually expressed as consecutive quarters of losses or an aggregate deficit over a defined period. Debt covenant violations are the second most common, often referencing a specific ratio such as an EBITDA-to-interest coverage ratio dropping below the contractual minimum.
Other conditions that regularly appear:
- The pending maturity of a significant debt facility with no committed refinancing in place.
- Loss of a major customer or franchise agreement.
- Cash flow projections showing the entity running out of operating funds before the end of the one-year look-forward period.
- Negative working capital.
- Loss of a principal revenue source.
None of these is automatically fatal on its own. ASC 205-40 requires management to weigh them in the aggregate. A single quarter of losses probably clears the threshold; the same losses combined with a debt maturity in ten months and a lost anchor customer do not.
How the Assessment Behind the Disclosure Works
The footnote is the output of an assessment that management must perform each annual and interim reporting period. The question is whether it is probable that the company will be unable to meet its obligations as they come due within one year after the financial statements are issued. “Probable” here carries the same meaning it does for loss contingencies under ASC 450: likely to occur. The one-year window starts on the issuance date, not the balance sheet date.
If the initial answer is that substantial doubt exists, management moves to a second step: evaluate whether its plans will fix the problem. The bar is higher than most companies expect. The plans must be both probable of being successfully implemented and effective enough to actually eliminate the doubt. A vague intention to seek new financing or cut costs does not qualify. Plans that can clear the bar include an executed agreement to sell a business division, a signed term sheet for refinancing with substantially complete terms, or an approved equity raise with committed investors. Quantified cash flow projections showing that the plan produces enough liquidity through the assessment period are part of the evidence.
The interim obligation matters too. A company that looked fine at year-end can trip the threshold by Q2 if conditions deteriorate, and the same one-year look-forward applies from the interim issuance date.
What the Auditor’s Report Adds
The footnote is management’s disclosure. The auditor performs a separate evaluation and, when substantial doubt exists, adds language to the audit report that points readers to the footnote.
For private companies audited under AICPA standards, the auditor adds an Emphasis-of-Matter paragraph. This paragraph does not change the opinion itself. The auditor can still issue an unmodified opinion if the financial statements are fairly presented and the required disclosures are in place. A qualified or adverse opinion arrives only when management has failed to make the required disclosures, leaving the financial statements materially misstated. The auditor retains discretion to include an Emphasis-of-Matter paragraph even when management’s plans have alleviated the doubt, if the underlying conditions are important enough that readers should know.
For public companies, PCAOB AS 2415 governs. When the auditor concludes substantial doubt exists, an explanatory paragraph goes into the audit report immediately after the opinion paragraph, describing the going concern uncertainty and referencing the relevant footnote.
Going concern can also qualify as a Critical Audit Matter under PCAOB AS 3101. A CAM is any matter communicated to the audit committee that relates to material accounts or disclosures and involved especially challenging auditor judgment. Going concern frequently meets both criteria. When it appears as both a CAM and the subject of an explanatory paragraph, both go into the report, typically with cross-references between the sections. The CAM communication adds detail about how the auditor addressed the matter during the audit.
Consequences That Follow the Disclosure
A going concern footnote does not sit alone. It triggers effects that can accelerate the distress it describes, which is worth understanding before finalizing the disclosure or reading someone else’s.
Debt Covenant Acceleration
Many commercial loan agreements treat a going concern modification in the audit report as an event of default. When the auditor’s report includes a going concern explanatory paragraph, the borrower can be in technical default without missing a payment or breaching a financial ratio. The lender gains the right to accelerate the full outstanding balance. The circularity is direct: the opinion triggers the covenant violation, which makes the debt immediately callable, which deepens the liquidity crisis that prompted the opinion. Management should analyze acceleration clauses during the assessment itself, because a forecasted acceleration is a condition that can raise or worsen substantial doubt.
Stock Exchange Listing
For public companies, a going concern opinion can factor into listing decisions. Nasdaq considers whether a company currently has or recently had a going concern audit opinion as one factor in evaluating whether delisting is warranted. It does not automatically trigger delisting, but it can contribute to a Staff Delisting Determination that the company must then appeal.
SEC Interim Reporting
Public companies that identify substantial doubt between regular filing dates face a timing question. No Form 8-K item is specifically designated for going concern determinations, but the identification is the type of material development that companies frequently disclose under Item 8.01 (Other Events). The general 8-K deadline is four business days after the triggering event. Coordination with counsel and auditors on timing matters, because the market impact of an 8-K disclosing substantial doubt can be severe.
Deferred Tax Assets
A going concern conclusion also hits the tax provision. Under ASC 740, deferred tax assets must be reduced by a valuation allowance if it is more likely than not that some or all of the benefit will not be realized. A conclusion that substantial doubt exists about the company’s ability to continue operating is powerful negative evidence against realizability. Future income projections generally cannot overcome that evidence on their own; the company typically needs more objective sources of future taxable income, such as the reversal of existing taxable temporary differences, to avoid a full valuation allowance. The practical result is that a going concern conclusion often forces a large valuation allowance charge, increasing the reported net loss in the same period the company can least afford it, and potentially triggering further covenant issues.
The Boundary With Liquidation Basis Accounting
Going concern disclosures assume the company is still being accounted for as a going concern. There is a point where that basis must be abandoned. Under ASC 205-30, a company must switch to the liquidation basis of accounting when liquidation becomes imminent, meaning either a plan for liquidation has been approved by the parties with authority to make it effective and the chance of returning from liquidation is remote, or liquidation has been imposed by outside forces and the chance of returning is remote. Once the basis switches, the disclosures discussed here no longer apply in the same form; the financial statements are telling a different story about what the assets are worth.