Going Concern in Malta: A Director's Guide (2026)

By the EGM Assurance Editorial Team . Last reviewed April 2026 . 13 min read

Going concern is one of the most consequential judgements made in any company's annual reporting cycle - and one of the most poorly understood. It sits at the intersection of accounting, audit and director duty: the directors must form a view; the financial statements must be prepared on the basis of that view; the auditor must evaluate the directors' conclusion; and the company's ability to operate in the year ahead is implicitly endorsed (or questioned) by the resulting audit report.

For Maltese directors, the going concern assessment is also linked to specific statutory obligations under the Companies Act - most notably the duty under Article 329A to convene a general meeting where the company is unable to pay its debts, and the personal liability exposure under Article 316 (wrongful trading) where directors continued to incur liabilities knowing the company could not meet them.

This guide explains how going concern is assessed in practice in Malta, what the auditor looks for, what changed with the 2024 revisions to ISA 570 (effective for periods beginning on or after 15 December 2026), the indicators of doubt directors should monitor, and what to do when those indicators appear. It reflects the position at April 2026.

1. What going concern actually means

Going concern is an accounting basis - a foundational assumption about how a company's financial statements are prepared. Under the going concern basis, the financial statements assume that the company will continue in operation for the foreseeable future and will not be forced into liquidation or to cease trading. Under this assumption, assets are recorded at their continuing-use values, liabilities are recognised on their normal payment schedules, and contingent obligations are evaluated against the company's expected ability to meet them.

The alternative - the "liquidation basis" or "break-up basis" - prepares the financial statements as if the company were being wound up. Under this basis, assets are written down to their forced-sale values, all liabilities crystallise immediately, and the financial statements reflect what shareholders would actually receive if the business were liquidated today. The two bases produce materially different numbers from the same underlying business.

Both Maltese financial reporting frameworks treat going concern as a fundamental accounting principle. IAS 1 (Presentation of Financial Statements, under IFRS as adopted by the EU) requires management to make a going concern assessment when preparing financial statements. GAPSME - the General Accounting Principles for Small and Medium-Sized Entities, introduced into Maltese law by Legal Notice 289 of 2015 and transposing the EU Accounting Directive 2013/34/EU - likewise requires going concern as one of the fundamental principles underpinning financial statement preparation. Under both frameworks, the presumption is that the company is a going concern unless management intends to liquidate or cease trading, or has no realistic alternative but to do so. Where any material uncertainty exists, that uncertainty must be disclosed in the financial statements.

2. Management's assessment: what directors must do

The going concern assessment is the directors' responsibility - not the auditor's. The auditor evaluates the assessment the directors have made; the directors must actually make it, properly support it, and document the basis for their conclusion.

Scope of the assessment

Directors must consider all available information about the future of the company's operations. The assessment should be:

• Forward-looking - examining what will happen, not just what has happened. Past profits are relevant context but not a substitute for future cash flow analysis.

• Comprehensive - covering operations, cash flow, financing, contractual commitments, regulatory pressures and significant external risks.

• Integrated with the company's ongoing business planning - the going concern assessment should be a natural output of management's normal forecasting and risk management processes, not a standalone exercise performed once a year for the auditor.

Period of assessment

The minimum period management must consider under IAS 1 is twelve months from the reporting date (the balance sheet date). The auditing standard's requirement on this point depends on which version of ISA 570 applies to the audit - and this is a 2026 transition issue Maltese companies need to understand.

Which version of ISA 570 applies to your audit?

ISA 570 was significantly revised in 2024. The revised standard, ISA 570 (Revised 2024), is effective for audits of financial statements for periods beginning on or after 15 December 2026. For most Maltese companies in practice this means:

• FY 2025 audits and FY 2026 audits (calendar-year companies): audited under the current pre-2024 ISA 570. Management's assessment covers at least 12 months from the balance sheet date.

• FY 2027 audits and beyond (calendar-year companies): audited under ISA 570 (Revised 2024). Management's assessment must cover at least 12 months from the date of approval of the financial statements - not the balance sheet date.

The change matters because the date of approval of the financial statements is typically 3 to 6 months after the balance sheet date. A company with year-end 31 December 2027 whose financial statements are approved on 30 April 2028 will, under ISA 570 (Revised 2024), require a going concern assessment looking forward to at least 30 April 2029 - 16 months from the balance sheet date. Under the prior version of ISA 570, that same assessment could have been limited to 12 months from year-end (i.e. to 31 December 2028). The revised standard therefore requires longer-horizon forecasting once it engages.

Companies and directors should begin preparing for ISA 570 (Revised 2024) now. The longer forecast horizon does not just affect the audit - it affects the underlying management forecast that the assessment is built on, and the depth of analysis the auditor will expect to see.

3. Indicators that may cast doubt on going concern

ISA 570 lists categories of events or conditions that may individually or collectively cast significant doubt on the company's ability to continue as a going concern. Importantly, ISA 570 (Revised 2024) clarifies that these indicators are assessed on a gross basis - before considering management's plans to mitigate them. The mitigation analysis is a separate step that follows the identification of indicators, not part of it.

Financial indicators

• Net liability or net current liability position on the balance sheet.

• Fixed-term borrowings approaching maturity without realistic prospects of renewal or refinancing.

• Inability to comply with the terms of loan agreements (breach of covenants).

• Persistent operating losses or significant deterioration in the value of assets used to generate cash flows.

• Arrears or discontinuance of dividends.

• Inability to pay creditors on due dates.

• Withdrawal of supplier credit or change to cash-on-delivery terms.

• Adverse key financial ratios - working capital, interest cover, debt-to-equity, current ratio.

• Substantial operating losses combined with significant cash outflows from operating activities.

Operating indicators

• Loss of key management without effective replacement.

• Loss of a major market, franchise, licence, or principal supplier.

• Labour difficulties or industrial action affecting operations.

• Shortages of important supplies.

• Emergence of a highly successful competitor.

Other indicators

• Pending legal or regulatory proceedings against the entity that may, if successful, result in claims the entity is unlikely to be able to satisfy.

• Changes in law, regulation or government policy expected to have an adverse effect on the entity.

• Pandemic-related disruptions, supply chain crises, or macroeconomic shocks affecting the entity's sector.

• Uninsured or underinsured catastrophes when they occur.

4. Mitigation: what to consider when indicators are present

Where one or more going concern indicators are identified, the directors must assess management's plans for future actions to mitigate the indicators. Realistic mitigation plans are the key to maintaining the going concern basis where indicators exist. The directors must document, in writing, what mitigation actions are envisaged, what the supporting evidence is, and what the implementation timeline looks like.

Common mitigation actions

• Cost reduction - redundancies, supplier renegotiations, premises consolidation, suspension of discretionary spending. Document the planned savings, the timeline and the implementation evidence.

• Asset disposals - sale of non-core assets, sale-and-leaseback arrangements, working capital optimisation. Document the asset, the expected sale value, the buyer/timing position, and any tax consequences.

• Refinancing or restructuring of debt - negotiations with banks, alternative lenders, covenant resets, maturity extensions, debt-to-equity conversions. Document the lender position with correspondence and term sheets where available.

• New financing - equity injection from shareholders, bridging loans, alternative finance (factoring, asset-based lending). Document the funding source, evidence of commitment (letters of support, signed term sheets), and the timeline.

• Operational restructuring - product portfolio rationalisation, market repositioning, joint ventures with stronger partners, sale of business units.

• Recovery procedures - in extreme cases, application for a Company Recovery Procedure under Article 329B of the Companies Act, which can give the company a protected moratorium to restructure its affairs.

What makes a mitigation plan credible

The auditor (and a sceptical third party) assesses mitigation plans on several dimensions:

• Specificity - a vague "we will reduce costs" is not a plan. A schedule identifying specific cost lines, target reductions, implementation owners and timelines is.

• Evidence - plans backed by contemporaneous evidence (lender correspondence, signed term sheets, supplier commitments, shareholder letters of support) are credible. Plans that rest only on management assertion are not.

• Realism - forecasts that assume an immediate 20% revenue increase, or that the company's major bank will agree to terms it has not yet been asked about, are not credible regardless of how detailed they are on paper.

• Within management's control - plans that depend on third-party actions (lender agreement, customer renewal, regulatory approval) need explicit consideration of what happens if those third parties do not agree.

• Timely - mitigation that takes 18 months to implement is no help when the cash crisis is six months away.

5. The Companies Act statutory duty (Article 329A)

Maltese company law imposes a specific statutory duty on directors where the company is unable to pay its debts. Article 329A of the Companies Act provides that where directors become aware that the company is unable to pay its debts (or is imminently likely to become so), they must convene a general meeting of the company to review the position and determine the next steps. The next steps will typically involve either dissolution and winding up, or applying for a Company Recovery Procedure under Article 329B.

Article 329A is not merely procedural. Failure to convene the meeting promptly when warning signs are present is itself a basis for personal liability under Article 316 - wrongful trading. Directors who continued to incur liabilities while being aware the company was unable to pay them, without convening the Article 329A meeting, are at significant risk of personal exposure.

How Article 329A interacts with going concern

The going concern assessment and the Article 329A duty are linked but distinct:

• The going concern assessment is a forward-looking accounting judgement - will the company be able to continue for at least 12 months?

• The Article 329A duty is triggered by present-tense facts - is the company unable to pay its debts now, or imminently likely to become unable?

A company can pass the going concern test (with disclosed material uncertainty) and not yet have triggered the Article 329A duty - because mitigation plans are realistic and the company is not currently unable to pay creditors. But once the company is actually unable to pay creditors as they fall due, the Article 329A duty has been triggered, regardless of the directors' forecasts.

6. The auditor's role under ISA 570

Once management has performed its going concern assessment, the auditor evaluates that assessment. The auditor's role is critical because the audit report communicates the going concern position to all users of the financial statements - banks, regulators, shareholders, creditors, suppliers.

The auditor's evaluation

• Risk assessment - the auditor identifies events or conditions that may cast significant doubt on going concern, on a gross basis (before management's plans for mitigation).

• Evaluation of management's assessment - the auditor reviews the method, assumptions and data underlying management's assessment. This is required under ISA 570 (Revised 2024) regardless of whether any going concern indicators have been identified.

• Evaluation of mitigation plans - the auditor evaluates the feasibility of management's plans and obtains evidence supporting them.

• Period extension - if management's assessment covers a shorter period than required, the auditor requests an extension. Refusal triggers additional procedures.

• Consideration of subsequent events - the auditor considers events between the balance sheet date and the date of the audit report that affect going concern.

• Communication with those charged with governance - timely two-way communication is required throughout, not just at the conclusion of the audit.

How the auditor's conclusion shapes the audit report

ISA 570 (Revised 2024) - the key changes

ISA 570 (Revised 2024) applies to audits of financial statements for periods beginning on or after 15 December 2026. For calendar-year Maltese companies, this means the FY 2027 audit (commencing 1 January 2027) is the first audit under the revised standard. Audits of FY 2025 and FY 2026 financial statements continue under the current ISA 570. The key changes once the revised standard takes effect:

• The minimum period of management's assessment is now 12 months from the date of approval of the financial statements (not from the balance sheet date) - typically extending the look-forward period by 3 to 6 months.

• New explicit auditor conclusions in the audit report - a dedicated "Going Concern" section confirming (a) that management's use of going concern is appropriate and (b) whether or not a material uncertainty exists.

• New defined term - "Material Uncertainty Related to Going Concern" (MURGC) - replacing earlier informal terminology.

• Mandatory risk assessment procedures even where no going concern indicators have been identified - the auditor must obtain evidence supporting the conclusion that no material uncertainty exists, not assume it.

• Enhanced transparency for listed entities - when there is a MURGC, or in "close call" situations, the auditor must describe how they evaluated management's assessment.

• Strengthened communications with those charged with governance, and new provisions for communicating with appropriate authorities outside the entity where required by law.

7. The practical sequence: from indicators to outcome

In a real-world Maltese SME facing going concern pressure, the sequence of events typically runs as follows. Following this sequence - with proper documentation at each step - is the strongest defence against subsequent challenge.

Stage 1: Detect the indicators

Indicators surface in the management accounts, in conversations with lenders, in supplier interactions, or through external developments. Directors who are paying attention should detect them weeks or months before they become a financial reporting issue.

Stage 2: Update the cash flow forecast

Prepare or update a detailed cash flow forecast covering at least 12 months (longer where ISA 570 (Revised 2024) applies). Sensitivity analysis should test the forecast against pessimistic scenarios - what happens if a major customer leaves, a supplier withdraws credit, or a refinancing fails.

Stage 3: Document the mitigation plan

List the specific actions management will take. Each action: target outcome, evidence of feasibility, implementation owner, timeline. Where the action depends on a third party, document what has been agreed and what remains uncertain.

Stage 4: Engage with key stakeholders

Major lenders, key creditors, significant shareholders - all should be informed of the position at the appropriate time. Open communication, particularly with banks, gives the company the maximum chance of constructive cooperation. Surprise late-stage disclosures destroy the relationships the company needs.

Stage 5: Consider Article 329A

If the company is in fact unable to pay its debts as they fall due, the Article 329A meeting must be convened without delay. Acting under Article 329A is a defence, not a confession - it demonstrates that directors took their statutory duty seriously.

Stage 6: Engage with the auditor

Bring the auditor into the conversation early - not just at the end of fieldwork. The auditor will need to evaluate the going concern position and the mitigation plan, and early engagement allows time for documentation to be properly prepared and for auditor concerns to be addressed before the audit report is drafted.

Stage 7: Approve the financial statements and audit report

The financial statements will reflect the going concern conclusion: unmodified going concern, MURGC with disclosure, or liquidation basis. The audit report will mirror the underlying position. Both documents become part of the company's public record.

8. Common mistakes

• Treating going concern as an annual checkbox exercise. The assessment should be a natural output of monthly management forecasting, not a once-a-year scramble for the auditor.

• Avoiding the conversation with the auditor in the hope that issues will not be raised. Auditors find going concern issues regardless. Early engagement gives the company a chance to shape the response; late disclosure shuts that door.

• Generic mitigation plans without supporting evidence. "We will raise additional finance" is not a mitigation plan; "we have a signed term sheet from XYZ Bank dated 15 March for a €500,000 facility, with conditions A, B, C, expected to draw down in May" is.

• Forgetting Article 329A. The Companies Act duty operates independently of the audit - a company can pass its audit and still have triggered Article 329A, exposing the directors to wrongful trading liability if it is not addressed.

• Confusing the going concern test with profitability. A loss-making company that has strong cash reserves and an agreed refinancing remains a going concern. A profitable company with a working capital crisis may not be.

• Inadequate documentation. Where the going concern position is challenged years later - in litigation, in a regulatory investigation, in a tax inquiry - the contemporaneous board minutes and supporting analysis are the directors' protection. Generic minutes do not provide that protection.

9. Frequently asked questions

If the auditor issues a MURGC opinion, has the company "failed" the audit?

No. A Material Uncertainty Related to Going Concern (MURGC) is not an adverse audit opinion. The audit opinion remains unmodified - the auditor is confirming that the financial statements are not materially misstated. The MURGC section simply highlights that a material uncertainty exists which the directors have appropriately disclosed in the financial statements. The audit report does not say the company will fail; it says there is a material uncertainty that users should be aware of.

Will my bank revoke our facility if the audit report shows a MURGC?

Not necessarily, but a MURGC is a flag that the bank's credit committee will examine carefully. Banks typically prefer to be involved in the discussion before the audit report is finalised. Where the bank is part of the mitigation plan (e.g. providing the refinancing that supports going concern), banks generally do not withdraw at the audit report stage - the rationale for their continued support is already on file. Where the bank learns of the MURGC through the audit report, the response can be less predictable.

Can a small company be exempted from the going concern assessment?

No. Every company that prepares financial statements under GAPSME or IFRS is required to make a going concern assessment as part of preparing those statements. The level of formality and documentation may vary with size and complexity - a small dormant company's assessment will reasonably be brief; a complex trading company's assessment will be more detailed - but the substance of the assessment cannot be avoided. A small company with no audit obligation under LN 139/2025 still requires its directors to assess going concern, because the underlying financial reporting framework (GAPSME or IFRS) requires it. The exemption removes the auditor's review of the conclusion; it does not remove the conclusion itself.

What if the directors cannot agree on the going concern position?

Going concern is a board decision and requires the board to reach a position collectively. Where directors genuinely disagree, the matter should be debated at a properly convened board meeting, with the reasoning of each director recorded. A director who believes the going concern conclusion is wrong should record their dissent in the minutes and consider whether their continued participation as a director is appropriate - disagreement on a fundamental matter such as going concern can expose individual directors to liability if the position they signed off proves to be wrong.

Can a company use the liquidation basis where it intends to continue operating?

No. The liquidation basis is appropriate only where management intends to liquidate the company or has no realistic alternative but to do so. A company that intends to continue operating must use the going concern basis, even where significant uncertainty exists. Where uncertainty crosses the materiality threshold, the company discloses the uncertainty rather than switching to the liquidation basis.

What is a Company Recovery Procedure?

The Company Recovery Procedure is a statutory restructuring mechanism under Article 329B of the Companies Act, equivalent to administration in some other jurisdictions. It provides the company with a court-supervised moratorium during which it cannot be pursued by creditors, while a special controller is appointed to develop a recovery plan. The procedure is intended for companies with viable underlying businesses that need time and protection to restructure. It is a serious legal step with significant consequences and should be considered only with specialist legal advice.

How does going concern interact with audit exemption under LN 139/2025?

Audit exemption under LN 139/2025 removes the requirement to have an auditor's report - it does not remove the requirement for management to make a going concern assessment. The financial statements must still be prepared under GAPSME or IFRS, both of which require a going concern assessment. The assessment, the conclusion, and the disclosure of any material uncertainty must all be in place even where no auditor reviews them.

If we identify a going concern issue, should we tell our suppliers?

This is a commercial judgement, not a legal one. The financial statements will eventually be public through the MBR filing, so suppliers will see the position in due course. The question is whether to inform key suppliers proactively in advance. Generally, transparent communication with key suppliers - particularly those critical to operations - tends to preserve relationships better than passive disclosure after the fact. Loss of supplier credit can itself be a going concern indicator - supplier engagement is part of preserving the company's position.

Related guides from EGM Assurance

• Becoming a Malta Company Director: Duties, Liability and Personal Exposure

• Statutory Audit in Malta: 2026 Guide for SMEs

• Company Liquidation and Dissolution in Malta

• GAPSME vs IFRS in Malta: Which Framework Applies

• Audit Preparation Checklist for Malta Companies

Authoritative references

• ISA 570 (Revised 2024), Going Concern - IAASB

• IAS 1 - Presentation of Financial Statements (IFRS)

• Companies Act (Cap. 386) - Article 316 (wrongful trading), Article 329A (insolvency duty), Article 329B (Company Recovery Procedure)

• Accountancy Profession (General Accounting Principles for Small and Medium-sized Entities) Regulations (GAPSME) - L.N. 289 of 2015

• Audit Exemption Rules (L.N. 139 of 2025)

Need help? EGM Assurance provides statutory audit services in Malta - partner-led, transparent, on time. Get a quote.

This article is prepared by EGM Assurance for general informational purposes and reflects the legal, accounting and auditing position in Malta as at April 2026. It does not constitute legal, tax, accounting or professional advice. The going concern assessment depends entirely on the specific facts and circumstances of each company - always obtain advice from a qualified professional before acting.