Going Concern Considerations for Governments

Defining Going Concern

Going concern is the principle that assumes a government entity or business will operate, at a minimum, for twelve consecutive months after assets are evaluated. This assumption affects how an organization’s financial statements are prepared. Organizations assumed to be a going concern will continue to operate, realize assets, and discharge liabilities.

A going concern assessment entails determining whether there is substantial doubt that the entity will be able to meet its obligations. If no doubt exists, the assessment is complete. However, if substantial doubt is raised, the organization is required to disclose the conditions and events causing it. In these instances, management is responsible for proposing a plan to alleviate substantial doubt. Plans to alleviate the doubt must be found to both be probable of being implemented and successfully address the risk. Plans that are not determined to successfully address the risk will trigger a modification to an auditor’s report.

Indications of Substantial Doubt

Although these are specific indicators as described in GASB Statement No. 56, there is overlap between the signs of substantial doubt in government entities and commercial businesses. These include:

• Negative Trends: Continuous periods during which organization expenses significantly exceed revenues, repeated unsubsidized operating losses, and recurring working capital deficiencies are all signs of poor financials that may require intervention.
• Internal Matters: If an organization is overly dependent on the success of one project or program, is dealing with unusually frequent work delays or other labor issues, or is commonly engaged in revising operations, then these internal matters will need to be addressed.
• External Matters: Any number of factors may have a detrimental effect on the organization, such as legal proceedings, new or amended legislation, the loss of a valuable license or patent for business activity, or even the loss of an integral supplier or customer. Organizations may also suffer when they are uninsured or underinsured for natural disasters such as earthquakes, floods, or fires.
• Other Signs of Financial Difficulties: Nonpayment of loans, bonds, or other agreements, high debt and tax limitations, debt restructuring, and denial of trade credit from usual suppliers are other signs that an organization is facing risk of substantial doubt.

Plans that Alleviate Substantial Doubt

In circumstances where substantial doubt has been raised and a plan is required to mitigate it, there are several options available to government entities or commercial businesses. Disposing of assets or business, borrowing money to restructure debt, or reducing or delaying expenditures may alleviate doubt, but any plan that relies on an outside party may be difficult to navigate, as it may require new negotiations from management, fewer cash proceeds, and may face the threat of market conditions.

Upcoming GASB Project on Financial Stress and Dissolution

GASB is currently developing new standards that will significantly impact going concern considerations for government entities. The Preliminary Views on Severe Financial Stress and Probable Dissolution Disclosures proposes to replace existing going concern uncertainty standards with separate evaluations for “severe financial stress” and “probable dissolution.” This project aims to address diversity in practice, clarify disclosure circumstances, and establish criteria for identifying when governments should disclose their exposure to severe financial stress. The public comment period concluded in June 2025, and GASB conducted public forums through September 2025. You can monitor the progress of this project on the GASB Current Projects page. We will continue to update our guidance as these standards are finalized and provide support to help your organization navigate any new requirements.

Other Considerations

Going concern is a complex principle. How should your organization perform the initial assessment? How frequently should it repeat the assessment? In the event that your organization is under substantial doubt, not only does a successful plan need to be implemented, but there are ongoing disclosure requirements that must be made. Has management ensured there are adequate processes and internal controls in place for further evaluation requirements? Our expert team will be able to guide you through this process and ensure your organization is fully compliant.