What does a going concern note mean in a financial statement?
A going concern note means management found conditions that make it probable the company cannot meet its obligations as they come due within one year after the financial statements are issued. The note then says whether management's plans alleviate that substantial doubt. If they do not, it must state plainly that substantial doubt exists.
The note comes in three versions that look alike at a glance: doubt raised and not alleviated, doubt raised and alleviated by management's plans, and doubt from an earlier year that is no longer present. The difference sits in a few exact phrases, and the auditor's report follows a separate rule with a different clock.
What does "substantial doubt" mean under ASC 205-40?
US GAAP puts the test in ASC 205-40, added by ASU 2014-15, and gives it to management, not the auditor. At each annual and interim reporting date, management must evaluate whether conditions and events, considered in the aggregate, raise substantial doubt about the company's ability to continue as a going concern "within one year after the date that the financial statements are issued."
Substantial doubt exists when those conditions and events make it probable, meaning likely to occur, that the company "will be unable to meet its obligations as they become due" within that year. Two details shape what you read. The clock starts at the issuance date, not the balance sheet date. And the first step ignores plans that are not yet fully implemented, such as plans "to raise capital, borrow money, restructure debt, or dispose of [assets]," as Deloitte's summary of the standard puts it. At that stage, a refinancing that has not closed counts for nothing.
Because the test repeats every quarter, a going concern note can first appear in a 10-Q; see how 10-Q notes differ from a 10-K.
When do management's plans "alleviate" substantial doubt?
If the first step finds substantial doubt, the second asks whether management's plans will alleviate it. ASC 205-40-50-7 requires both of these to be probable: that the plans "will be effectively implemented within one year after the date that the financial statements are issued," and that, once implemented, they "will mitigate the relevant conditions or events that raise substantial doubt." Either outcome requires a note. The two versions differ in how they describe the plans and in one required sentence:
| Disclosure | Doubt alleviated | Doubt not alleviated |
|---|---|---|
| Principal conditions or events that raised the doubt | Yes | Yes |
| Management's evaluation of their significance | Yes | Yes |
| Management's plans | Plans that alleviated the doubt | Plans intended to mitigate it |
| Statement that there is "substantial doubt about the entity's ability to continue as a going concern" | No | Yes |
Source: ASC 205-40-50-12 and 50-13, as summarized in Deloitte's Accounting Spotlight on going concern (July 8, 2020).
The words "substantial doubt" appear in both kinds of note, because both describe the doubt that was raised. Only the unalleviated version states, as its conclusion, that substantial doubt exists. Disclosure also continues into later periods, which produces a third version: a note explaining that earlier doubt is gone.
What does the auditor's going concern paragraph say?
The auditor runs a separate evaluation under PCAOB AS 2415, a standard in force since 1989 with its own clock. It covers "a reasonable period of time, not to exceed one year beyond the date of the financial statements being audited," so the window runs from the balance sheet date.
If the auditor concludes that substantial doubt remains, paragraph .12 requires "an explanatory paragraph, including an appropriate title (immediately following the opinion paragraph)," using the phrase "substantial doubt about its (the entity's) ability to continue as a going concern" or similar wording with both terms. Conditional language is not allowed. If management's plans alleviate the doubt, the auditor instead considers whether the original conditions need disclosure. And silence proves nothing: "the absence of reference to substantial doubt in an auditor's report should not be viewed as providing assurance as to an entity's ability to continue as a going concern."
How do the note and the auditor's paragraph differ, and where is each in a 10-K?
| Management's note | Auditor's paragraph | |
|---|---|---|
| Rule | ASC 205-40 | PCAOB AS 2415 |
| Looks ahead | One year from the issuance date | Up to one year from the balance sheet date |
| Doubt alleviated | Note describes conditions and plans | No paragraph required |
| Doubt remains | Note states that substantial doubt exists | Titled explanatory paragraph |
| Location | Notes in Item 8, often Note 1 or a liquidity note | Auditor's report in Item 8, after the opinion |
Sources: ASC 205-40 as summarized by Deloitte; PCAOB AS 2415, paragraphs .02, .11 and .12.
The facts belong in MD&A too. Item 303 of Regulation S-K requires a company to "identify any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant's liquidity increasing or decreasing in any material way." Two of the three filings below also carry a going concern risk factor in Item 1A.
What does a real going concern note look like?
America's Car-Mart sells older used vehicles and "provides financing for substantially all of its customers." Its 10-K for the fiscal year ended April 30, 2026, filed July 14, 2026, letters its notes instead of numbering them. The going concern discussion is Note B, Liquidity and Going Concern.
The facts first. Car-Mart's $300.0 million senior secured term loan carries a minimum liquidity covenant and a minimum collateral coverage ratio. The company "was in compliance with these covenants at April 30, 2026." After year end it failed both, and expected to miss a third requirement: delivering audited fiscal 2026 statements "without a going concern qualification." Short-term waivers followed, then a June 19, 2026 amendment granting covenant relief for a limited period.
| Item | Figure | Where |
|---|---|---|
| Term loan principal | $300.0 million | Notes B and G |
| Cash and cash equivalents, April 30, 2026 | $47.0 million | Balance sheet, MD&A |
| Net loss, fiscal 2026 | $139.1 million | Statement of operations |
| Covenant relief | To September 7, 2026; to November 6, 2026 only if conditions are met | MD&A, auditor's report |
| Minimum liquidity during relief | $7.0 million each Friday, $5.0 million otherwise | Note B |
| Fees to lenders | Up to $18.0 million | MD&A, Note Q |
Source: America's Car-Mart, Inc. Form 10-K for the fiscal year ended April 30, 2026, Notes B, G and Q, MD&A and the auditor's report.
Management's plans include meeting the amendment's milestones, a Special Committee review of strategic and financing alternatives, a new warehouse facility and new capital. Possible outcomes, the note says, include "a refinancing, recapitalization, restructuring or sale of the Company or its assets," dilutive equity, or bankruptcy protection. Then the conclusion:
"Management has concluded that its plans, which have not been fully implemented as of the date these Consolidated Financial Statements are issued, do not alleviate the substantial doubt. Therefore, there is substantial doubt about the Company's ability to continue as a going concern within one year after the date that these Consolidated Financial Statements are issued."
Grant Thornton's report, dated July 14, 2026, says the statements "present fairly, in all material respects," then adds a paragraph titled "Going concern" after the opinion section. It concludes that the company's ability to carry out these steps "is uncertain and raises substantial doubt about its ability to continue as a going concern."
Note the timing. At the balance sheet date Car-Mart was in compliance; the doubt comes from events after year end and from the year ahead. That is why Note B points to Note G, the debt note, and to Note Q, Subsequent Events, which adds that about $18.0 million of debt issuance costs from the waivers and amendment were added to the loan's principal.
The opinion itself is not qualified. The loan agreement called the going concern language a "qualification" anyway, and the amendment waived, during the relief period, the anticipated default from receiving one for fiscal 2026.
How do you tell raised, alleviated and resolved doubt apart?
Two other 10-Ks from the same filing season show the other versions. Read the verbs.
| Filing | What the note says | Status | Auditor's report |
|---|---|---|---|
| America's Car-Mart, fiscal 2026, Note B | Plans "do not alleviate the substantial doubt" | Raised, not alleviated | Going concern paragraph |
| Microvast Holdings, 2025, Note 1 | Conditions "raise substantial doubt"; "it is probable that the execution of these plans will alleviate the substantial doubt" | Raised, alleviated | No going concern paragraph; going concern is a critical audit matter |
| PureCycle Technologies, 2025, Note 3 | "the previous substantial doubt ... is no longer present" | Earlier doubt resolved | No going concern paragraph; no critical audit matters |
Sources: Car-Mart 10-K, Microvast 10-K for 2025, PureCycle 10-K for 2025.
Microvast's note is the one to read twice. It says conditions "raise substantial doubt," then concludes that plans built on operating cash flow and on rolling over short-term bank loans will alleviate it; $93.1 million of its $106.3 million in bank borrowings were due within 12 months. Its auditor added no going concern paragraph but reported the assessment as a critical audit matter, citing "a high degree of auditor judgment."
PureCycle shows the exit. Note 3 says doubt disclosed in earlier filings had been "alleviated by management's plans," and that after about $300.0 million of gross proceeds from preferred stock sold in June 2025 it "is no longer present." The same note says the company's ability to continue as a going concern "longer term" depends on its Ironton plant and on plants not yet built.
How is going concern worded under IFRS?
IAS 1 requires disclosure of "material uncertainties related to events or conditions that may cast significant doubt upon the entity's ability to continue as a going concern." The assessment covers "at least, but is not limited to, twelve months from the end of the reporting period," so it starts at the balance sheet date and twelve months is a floor.
Planned mitigating actions feed into whether a material uncertainty exists at all. Where concluding that none remains "involves significant judgement," the IFRS Foundation's educational material says the significant-judgement disclosures of IAS 1 paragraph 122 apply. IFRS 18 moved the going concern requirements "unchanged" from IAS 1 into IAS 8, effective for annual periods beginning on or after 1 January 2027.
Auditors under the IAASB's standards report in a section titled "Material Uncertainty Related to Going Concern" or "Going Concern" (IAASB FAQ). Our guide to UK annual reports covers how those documents are laid out.
What should you read after the going concern note?
The going concern note summarizes problems documented elsewhere. A sensible order for the rest:
- Read the debt note. Find each covenant, the maturities due within the year and any waiver or amendment; at Car-Mart the trigger was a covenant failure.
- Read the liquidity section of MD&A. Compare the sources of cash management describes with what falls due in the next 12 months.
- Read the subsequent events note. Covenant failures, waivers and new financing after year end can drive the conclusion, as they did at Car-Mart.
- Read the auditor's report. Look for a going concern paragraph after the opinion and for a critical audit matter on going concern.
- Read the income tax note. A new valuation allowance against deferred tax assets reflects a similar judgment about future income.
- Read the next 10-Q. Management repeats the evaluation every quarter, so the note can change or disappear before the next 10-K.
At Car-Mart, the tax note turns up a related judgment: in fiscal 2026 the company established a $53.0 million non-cash valuation allowance against the net deferred tax assets of Colonial, its finance subsidiary. For moving between notes generally, see how to read 10-K footnotes.
Questions
Does a going concern note mean the company will go bankrupt?
No. It means management found it probable that the company cannot meet its obligations as they come due within one year after the financial statements are issued, then judged whether its plans fix that. Doubt can lift: PureCycle's 2025 10-K says earlier doubt is no longer present after about $300.0 million of preferred stock was sold.
What is the difference between substantial doubt and material uncertainty?
Substantial doubt is the US GAAP term in ASC 205-40, tested over one year after the date the financial statements are issued. Material uncertainty is the IFRS term from IAS 1, assessed over at least twelve months from the end of the reporting period. Both describe doubt about an entity's ability to continue as a going concern.
Can substantial doubt be alleviated?
Yes. Under ASC 205-40 it is alleviated when it is probable that management's plans will be effectively implemented within one year and probable that they will mitigate the conditions. The note still describes the conditions and the plans but does not state that substantial doubt exists. Microvast's 2025 10-K is an example.
Where is the going concern paragraph in the auditor's report?
Under PCAOB AS 2415 it is an explanatory paragraph with its own title, placed immediately after the opinion paragraph. In America's Car-Mart's 10-K for fiscal 2026 it is titled "Going concern" and follows the opinion section of Grant Thornton's report in Item 8.
Reading a going concern note without losing your place
A going concern note sends you to the debt note, the subsequent events note and MD&A, and those send you further. SeeNote is a Chrome extension that turns "see Note 12" style references in EDGAR 10-Ks and 10-Qs into links that open the note verbatim in a popup where you are reading, and it follows chains of references inside notes too. Your first three filings are free, with no card and no expiry; pricing is on seenote.co.