IFRS IAS 1 requires UAE management to assess going concern for at least 12 months from the reporting date. If there is material uncertainty about going concern, it must be disclosed in the financial statements and the auditor’s report. Indicators of going concern risk: net current liability position, approaching debt maturities, operating losses, loss of key contracts, and inability to renew trade licence.
What UAE management must assess
Under IFRS IAS 1, management must assess whether the company can continue as a going concern — generate sufficient cash flow to meet its obligations as they fall due — for at least 12 months from the balance sheet date.
- Cash flow forecast: A detailed 12-month cash flow projection showing that the business has (or can access) sufficient cash to continue operating. This is the primary evidence.
- Debt maturities: Any bank loans, director loans, or bond maturities falling due within 12 months — are they refinanceable? Are there waiver letters from lenders?
- Net current liability position: If current liabilities exceed current assets (negative working capital), management must explain how the shortfall will be funded.
- Loss of key contracts or major customers: Has a significant revenue source been lost? Is the business dependent on a contract that is up for renewal?
- Regulatory and licence risk: Is the trade licence at risk? Are there outstanding MOHRE fines or FTA penalties that could escalate?
How auditors assess going concern in UAE
- Review management’s assessment: The auditor evaluates the cash flow projections — are the assumptions reasonable? Is the forecast consistent with actual trading?
- Bank confirmation letters: Auditors request written confirmation from UAE banks confirming loan facilities, their maturity dates, and any covenant waivers.
- Post-balance-sheet review: Events after the reporting date (new contracts won, further losses, licence suspension) are reviewed and factored into the going concern conclusion.
- Board minutes: The auditor reviews board minutes for evidence of management’s awareness of and response to going concern risks.
Going concern disclosure in UAE financial statements
Two outcomes when going concern risk is identified:
- Material uncertainty exists: The auditor concludes there is material uncertainty about going concern — but the company has taken adequate steps (restructuring plan, new funding, trade licence renewal confirmed). The financial statements are still prepared on a going concern basis, but a material uncertainty disclosure is required in the notes AND the auditor’s report includes an Emphasis of Matter paragraph. This is not a qualified opinion — it is a disclosure.
- Going concern basis is not appropriate: In extreme cases where the business will clearly not continue, the accounts must be prepared on a ‘break-up’ basis — assets at liquidation value, not cost. This is rare but material.
The most common UAE going concern trigger is a loan or overdraft maturing within 12 months that cannot be refinanced. If the lender provides a written waiver (agreeing not to call the loan within 12 months) or a renewal confirmation, the going concern issue disappears. Auditors require this letter before removing the going concern qualification. Get the waiver letter before the audit fieldwork starts.
Concerned about a going concern issue in your UAE business?
We assess going concern risk, prepare the management documentation, and advise on mitigating actions before the auditor arrives. Fixed fee.
Frequently asked questions
What triggers a going concern issue in a UAE audit?
Common triggers: net current liabilities (more short-term debt than short-term assets), bank loan maturities within 12 months without refinancing confirmed, consecutive operating losses, dependence on a contract or customer that is at risk, or FTA/MOHRE penalties that threaten trade licence renewal.
Does a going concern disclosure mean the UAE business is insolvent?
No. A going concern disclosure means there is material uncertainty about whether the business will continue — not that it will definitely fail. With adequate mitigating actions (new financing, cost restructuring, new contracts), the business can continue. The disclosure is transparency, not a death sentence.
How does a UAE going concern qualification affect the trade licence?
Free zone authorities and the DED/MoEC consider going concern disclosures in licence renewal decisions. A material uncertainty disclosure (emphasis of matter) typically requires an explanation of the mitigating actions taken. A full-blown adverse opinion on going concern grounds could block licence renewal.
What is the difference between a going concern emphasis of matter and a going concern qualification?
An emphasis of matter paragraph highlights a disclosed issue without modifying the opinion — the statements are still true and fair, but the reader’s attention is drawn to the uncertainty. A going concern qualification (or adverse opinion on going concern grounds) means the auditor disagrees with the basis of preparation — this is more serious and rarer.