Going Concern

Question 1

Going Concern

Answer 1

Management is required to evaluate whether there are factors that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the FSs are issued. Evaluations are based on “relevant conditions and events that are known and reasonably knowable at that date that the FSs are issued. The yardstick to measure substantial doubt is if relevant conditions indicate that the entity won’t be able to meet its obligations as they become due within one year after the date that the FSs are issued.

Question 2

Two situations when disclosures are required

Answer 2

1. If substantial doubts arose but were then alleviated by management’s plans, then a disclosure is required
2. If substantial doubts arose and were not alleviated, then a disclosure is required that states there is a going concern issue and there is doubt that the entity will be able to meet its obligations within a year of issuing the FSs.

Question 3

What should a disclosure describe

Answer 3

1. 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 if situation #1)
2. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
3. (Situation #1) Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern OR (Situation #2) Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.