The assumption behind the numbers
Most financial statements quietly assume the business will still be trading next year. That is why equipment is spread over its useful life and prepaid costs are carried forward instead of written off at once. If a business were about to close, those carrying amounts would no longer describe what the assets are worth to anyone.
The idea is visible in the CRA’s own audited statements. Its independent auditor’s report says management is responsible for assessing the ability to continue as a going concern and for using the going concern basis unless it intends to liquidate or has no realistic alternative. Similar going concern language commonly appears wherever statements are audited, and your accountant can explain how it applies to your engagement.
Warning signs that raise the question
No single measure decides it, and it takes judgment. Typical signals include repeated losses, negative working capital, cash that cannot cover obligations falling due, loans in default or not renewed, and the loss of a major customer or key supplier. A business can also be profitable on paper and still have a cash problem, which is covered in why profitable businesses run short of cash.
When there is a material uncertainty, an auditor is expected to draw attention to the related disclosure in the statements, as the CRA’s own auditor’s report describes. A bank reading your statements may ask about the plan behind that disclosure.
An illustrative example
Consider a small manufacturer whose year-end statements show $40,000 in current liabilities against $15,000 in cash and receivables, with a bank loan falling due in three months. The business has a signed contract and a lender who has indicated it will renew. Management would document that plan to support preparing the statements as a going concern. These figures are illustrative, not a test.
Had the lender declined to renew and no other funding existed, the accountant might need to discuss disclosure or a different basis of preparation.
What to discuss with your accountant
Ask whether your type of engagement, compilation, review or audit, involves a going concern assessment, and how far ahead the assessment looks. Bring a cash forecast, loan agreements with renewal dates, major contracts and any correspondence with lenders.
The going concern basis is an accounting judgment, not a tax election. Tax rules continue to apply separately, including when a business is sold or closed.
Sources & editorial notes
Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.
- CRA: Independent auditor’s report, Agency Activities 2024-25Canada Revenue Agency
Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.