The going concern principle is a cornerstone of accounting, but in 2025, its significance for Australian businesses is more pronounced than ever. With economic headwinds, evolving regulations, and heightened scrutiny from auditors and regulators, understanding going concern can mean the difference between business survival and closure. Here’s what every business owner, investor, and financial professional needs to know about going concern in Australia right now.
What Is the Going Concern Principle?
At its core, the going concern principle assumes a business will continue operating for the foreseeable future, without the need or intention to liquidate or significantly curtail its operations. This assumption underpins how assets and liabilities are valued in financial statements. If a business is not a going concern, the entire approach to accounting changes—assets might need to be written down, and liabilities reclassified.
For example, a Melbourne-based hospitality group struggling with post-pandemic shifts in consumer behaviour may be flagged by auditors as having ‘material uncertainty’ over its ability to remain a going concern if it can’t demonstrate sufficient cash flow for the next 12 months.
2025 Regulatory Updates: What’s Changed?
In 2025, the Australian Accounting Standards Board (AASB) has tightened disclosure requirements regarding going concern assumptions. Triggered by high-profile insolvencies in 2023–2024, these updates aim to increase transparency and early warning for creditors and investors. Key changes include:
- Enhanced Disclosure: Directors must provide detailed commentary when ‘material uncertainty’ exists, including management’s plans and the likelihood of success.
- Auditor Responsibilities: Auditors are now required to conduct more robust testing of cash flow forecasts and stress-test management’s assumptions, particularly in sectors flagged as high-risk (e.g., construction, retail, and hospitality).
- Real-Time Reporting: Listed entities must disclose going concern risks in quarterly updates, not just annual reports, making it harder for issues to remain hidden until year-end.
The ATO has also signalled it will pay closer attention to tax compliance among businesses showing going concern red flags, such as persistent late payments or falling net assets.
Red Flags and Real-World Examples
How does going concern play out in practice? Here are some common warning signs Australian businesses and their stakeholders should watch for in 2025:
- Consistent operating losses or negative cash flow
- Breaching loan covenants
- Major legal disputes or regulatory investigations
- Loss of significant customers or contracts
- Difficulty refinancing debt as interest rates remain elevated
In early 2025, a Sydney-based construction firm, BuildWell Pty Ltd, saw its auditor raise a going concern flag after the business failed to secure new contracts and defaulted on a supplier loan. The company’s directors had to disclose their contingency plans, including asset sales and renegotiation with creditors, in their half-year financial report. Investors responded by marking down the share price, illustrating how going concern assessments have immediate market impact.
Implications for Business Owners, Investors, and Lenders
For business owners, a going concern warning can trigger a chain of events: loss of supplier credit terms, stricter lending conditions, and heightened scrutiny from the ATO. It’s critical to maintain robust cash flow forecasts and regularly stress-test business models against worst-case scenarios.
Investors and lenders now expect more real-time visibility into a company’s financial health. In 2025, many banks require quarterly updates on going concern status as part of loan covenants, particularly for SMEs in volatile industries. Failing to address going concern issues early can lead to loss of investor confidence, higher borrowing costs, or even forced restructuring.
