Going concern · ISA 570
Can your client continue operating?
Altman Z, Taffler, Springate and liquidity signals in one view. Explore cash-flow projections and stress tests, and prepare a working draft for professional review under ISA 570.
Three insolvency models
Compare three model perspectives
Altman, Taffler and Springate applied to the same data. Agreement between models is a signal to consider, not independent assurance of accuracy.
Altman Z-Score
- A · WC/TA
- B · RE/TA
- C · EBIT/TA
- D · MVE/TL
- E · S/TA
Taffler
- X1 · PBT/CL
- X2 · CA/TL
- X3 · CL/TA
- X4 · NTT
Springate S
- A · WC/TA
- B · EBIT/TA
- C · PBT/CL
- D · S/TA
Warning signals
Seven liquidity indicators
Alongside model scores, review operational signals with explicit thresholds and explanations.
Negative working capital
WARNCurrent liabilities exceed current assets, indicating potential liquidity pressure.
Rising DSO
WARNCustomers are taking longer to pay, putting pressure on cash flow and potentially increasing impairment risk.
Current ratio
OKAbove the selected threshold; stable over four quarters.
Interest coverage
OKEBIT covers interest expense 4.8 times in this example.
EBITDA margin
OKAbove the illustrative industry median of 11.2%.
Debt to equity (D/E)
OKAn indicator for assessing financial leverage.
Operating cash flow
OKAn illustrative year-on-year increase of 18%.
Cash-flow projection
An 18-month outlook
A historical baseline with optimistic, base and pessimistic scenarios helps identify when a liquidity gap could arise.
In this synthetic scenario, cash falls below zero if DSO remains at 74 days and sales do not grow. Funding and supplier terms are questions for review, not automatic recommendations.
Stress testing
What if sales fall by 20%?
Explore changes in key drivers and their effect on model scores and cash. Review the assumptions before using the explanation in audit or management work.
Working draft
A starting point for ISA 570 documentation
AI helps prepare a draft explanation of the going concern assessment. The auditor checks evidence, wording and suitability before using it in a report.
Uncertainty relating to going concern
We draw attention to Note 23 to the financial statements, which states that the Company reported a profit in 2024, but working capital is negative by EUR 184,300 , while DSO increased from 58 to 74 days.
The Altman Z-score is 2.14 , within the model’s grey zone. The cash-flow projection for the following 18 months indicates a potential liquidity gap in July 2025 under the pessimistic scenario.
These events indicate the existence of a material uncertainty that may cast significant doubt on the Company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter.
Frequently asked questions
Going concern questions
Make the assumptions visible.
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