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Going concern: financial reporting duties and risks for directors

When financial statements must flag going concern doubts, how adequate arrangements link to crisis signals, and what directors risk.

The financial statements must contain specific disclosure on going concern (continuità aziendale) when the directors, looking ahead at least twelve months from the reporting date, identify material uncertainties about the company’s ability to continue operating: the notes to the financial statements (nota integrativa) must set out the risks, assumptions and plans. If the share capital has also been lost and the business continues to be run as before, the directors are personally liable for the resulting damage; once liability is established, the damage is presumed to equal the difference between the two net equity figures, less the normal costs of liquidation, unless a different amount is proved.

The framework

Article 2423-bis, paragraph 1, no. 1, of the Italian Civil Code (codice civile, c.c.) requires items to be measured “on a going concern basis”. OIC 11 (paras. 21-24), issued by the OIC (Organismo Italiano di Contabilità, the Italian accounting standard setter), turns this into a methodological obligation: those preparing the financial statements must carry out a forward-looking assessment covering at least twelve months from the reporting date. If there are no material uncertainties, no specific disclosure is needed; if there are, the notes set out the risk factors, the assumptions made, the plans to address them and the reasons why the uncertainties are material. If there is no reasonable alternative to ceasing operations, the going concern measurement bases continue to apply, taking account of the shorter time horizon; liquidation bases are used only once liquidation has formally begun.

The assessment, however, does not start at year-end: Article 2086, paragraph 2, c.c. requires entrepreneurs operating through a company or other collective form to put in place organisational, administrative and accounting arrangements (assetti organizzativi, amministrativi e contabili) adequate to the nature and size of the business, including in order to detect a crisis and the loss of going concern in good time, and to act without delay; this task falls exclusively to the directors (Articles 2380-bis and 2475 c.c.). Article 3 of Legislative Decree no. 14 of 12 January 2019 (the Code of Business Crisis and Insolvency, Codice della crisi d’impresa e dell’insolvenza, CCII) requires those arrangements to verify the sustainability of debts and going concern for at least the following twelve months. The arrangements must also pick up the warning signs listed in paragraph 4: wages overdue by at least thirty days amounting to more than half of the monthly payroll; trade payables overdue by at least ninety days exceeding those not yet due; bank exposures overdue or in excess of facility limits for more than sixty days amounting to at least 5% of the total; debts to public creditors above the thresholds of Article 25-novies (for VAT, an overdue and unpaid debt exceeding 5,000 euro and not lower than 10% of the previous year’s turnover, or in any event exceeding 20,000 euro).

The duty to oversee the adequacy and functioning of these arrangements, previously laid down in Article 2403 c.c., has been governed since 29 April 2026 by Article 2396-quinquies c.c. (Legislative Decree no. 47 of 27 March 2026), which also applies to the statutory auditor (sindaco) or board of statutory auditors (collegio sindacale) of an srl (società a responsabilità limitata, a limited liability company) (Article 2477 c.c.); observations on the financial statements remain in the report under Article 2429 c.c. The external auditor states any material uncertainties relating to going concern in the audit report (Article 14, paragraph 2, letter f, Legislative Decree no. 39 of 27 January 2010). Statutory and external auditors who identify a state of crisis or insolvency must report it to the directors in writing, giving reasons and using a means that provides proof of receipt, and set a deadline of no more than thirty days for a reply (Article 25-octies CCII).

For directors, Articles 2485 and 2486 c.c. are what matter. A ground for dissolution must be ascertained without delay (Article 2485), but the directors’ powers are limited to acts preserving the integrity and value of the company’s assets from the moment the ground arises (Article 2486, paragraph 1), not from the moment it is ascertained. Liability actions by the company and by creditors remain available (Articles 2392 and 2394 c.c. for spas, società per azioni, joint-stock companies; Article 2476 c.c. for srls), and in judicial liquidation (liquidazione giudiziale) they are brought by the insolvency administrator (curatore) (Article 255 CCII).

What changes in practice

First case. An srl closes 2025 with a profit, but its monthly cash budget for 2026 forecasts receipts of 1,200,000 euro and outflows of 1,290,000, including loan instalments of 120,000; the available credit line is 50,000. The shortfall is 90,000 euro, of which the credit line covers 50,000: 40,000 remain uncovered. This may be a material uncertainty to be disclosed, even without an overt crisis: in that case the notes explain how the gap will be covered (a shareholder contribution already resolved upon, renegotiation of the loan), and it is advisable for the minutes to document the plan.

Second case. An srl has share capital of 10,000 euro and negative net equity of 30,000 euro at 31/12/2025: the capital has been lost and the ground for dissolution under Article 2484, no. 4, c.c. applies, unless the company is recapitalised or converted (Article 2482-ter c.c.). The directors do not call a shareholders’ meeting and carry on operating. When judicial liquidation is opened, net equity is negative by 230,000 euro and the normal costs of liquidation are estimated at 20,000. The damage presumed under Article 2486, paragraph 3, is 230,000 − 30,000 − 20,000 = 180,000 euro, borne personally and jointly by the directors, unless evidence to the contrary is provided as to the amount. If insolvency proceedings have been opened and there are no reliable accounting records, the damage is measured as the difference between the assets and liabilities established in the proceedings, which is often higher.

Practical steps

• Management body, before the draft financial statements: a twelve-month monthly cash budget and a written going concern memo, referred to in the minutes; the draft must reach the statutory and external auditors at least thirty days before the shareholders’ meeting (Article 2429 c.c.).
• During the year: interim accounts at least quarterly and a schedule of debts to employees, suppliers, banks and public bodies, compared against the thresholds of Articles 3, paragraph 4, and 25-novies CCII.
• Losses exceeding one third that bring capital below the legal minimum: shareholders called without delay (Articles 2447 and 2482-ter c.c.); from that moment only acts of preservation (Article 2486 c.c.), then, if the company is not recapitalised, ascertainment of the ground for dissolution and registration with the companies register (registro delle imprese) (Articles 2484 and 2485 c.c.).
• Warning report received: a written reply within the deadline and consideration of negotiated settlement of the crisis (composizione negoziata, Articles 12 et seq. CCII).
• To be kept on file: budgets, interim accounts, minutes, reports and replies. They help to show that the arrangements were working.

Mistakes to avoid

• Repeating the going concern wording every year without any analysis: OIC 11 requires a forward-looking assessment.
• Switching to liquidation bases as soon as the figures worsen: until liquidation formally begins, the going concern bases apply.
• Confusing the two time horizons: OIC 11 counts twelve months from the reporting date, while Article 3 CCII requires them to be checked on an ongoing basis during the year.
• Relying only on financial statement ratios: the statutory warning signs concern above all overdue debts and cash.
• After the capital has been lost, starting new transactions that do not serve to preserve the company’s assets, paying creditors selectively without a preservation purpose, or repaying shareholder loans (Articles 2467 and 2486 c.c.).

References

Articles 2086, paragraph 2, 2380-bis, 2392, 2394, 2396-quinquies, 2403, 2423-bis, 2429, 2447, 2467, 2475, 2476, 2477, 2482-ter, 2484, 2485 and 2486 c.c.

Legislative Decree no. 47 of 27 March 2026

Legislative Decree no. 14 of 12 January 2019, Articles 3, 12, 25-octies, 25-novies and 255

Legislative Decree no. 39 of 27 January 2010, Article 14, paragraph 2, letter f

OIC 11 “Finalità e postulati del bilancio d’esercizio” (objectives and postulates of financial statements), paras. 21-24