Going Concern

Question 1

What are some examples of Management’s plans to mitigate adverse effects?

Answer 1

plans to dispose of assets,
plans to borrow money or restructure debt,
plans to reduce or delay expenditures, or
plans to increase ownership equity.

Example - lease rather than purchase

Question 2

If conditions or events raise substantial doubt about an entity’s ability to continue, and substantial doubt is not alleviated after consideration of management’s plans, an entity should

Answer 2

include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued

Question 3

What is the going concern assumption?

Answer 3

“Continuation of a reporting entity as a going concern is presumed as the basis for preparing financial statements unless and until the entity’s liquidation becomes imminent,”

Question 4

When does Substantial doubt about an entity’s ability to continue as a going concern exist?

Answer 4

when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due

Question 5

What are examples of potential substantial doubt?

Answer 5

Negative financial trends

Indications of possible financial difficulties

External matters such as legal proceedings

Question 6

if the substantial doubt has been alleviated as a result of consideration of management’s plans what information should the entity disclose to users?

Answer 6

the principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans).

management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.

management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations.