Question: What Are The Key Factors That Indicate That The Company May Have A Going Concern Problem?

What is going concern concept with example?

The going concern concept of accounting implies that the business entity will continue its operations in the future and will not liquidate or be forced to discontinue operations due to any reason.

Another example of the going concern assumption is the prepayment and accrual of expenses..

What is the concept of going concern?

The concept of going concern is an underlying assumption in the preparation of financial statements, hence it is assumed that the entity has neither the intention, nor the need, to liquidate or curtail materially the scale of its operations.

How do you disclose going concern?

In case an entity considers the going concern assumption to be appropriate, but a material uncertainty exists, then such an entity would have to make disclosure of the fact in the financial statements of presence of uncertain future events or conditions that may result in the entity being unable to continue in business …

How do I report a going concern?

The auditor should give a brief description of the circumstances that led to the material uncertainty and then draw attention to the note in the financial statements that discloses this matter and state that these events or conditions indicate that a material uncertainty exists that may cast significant doubt on the …

Is Going Concern good or bad?

Is a going concern good or bad? A going concern is considered good for the time being. It means your business is facing financial distress but is still able to make payments to keep it operating.

How do you use going concern in a sentence?

going concern in a sentenceAnd corporate auditors were questioning Interstate’s ability to remain a going concern.All 23 stores were put up for sale as a going concern.All staff were eliminated and the business ceased as a going concern.The original Elxsi Corporation, however, remained in business as a going concern.More items…

Who is responsible for assessing the entity’s ability to continue as a going concern?

12. The auditor shall evaluate management’s assessment of the entity’s ability to continue as a going concern.

How do you determine if a company is a going concern?

To be deemed a going-concern, a company must be able to generate and/or raise enough cash to pay its operating expenses and make appropriate payments on debt.

What is sale of going concern?

A sale of a business as a going concern involves the seller (the vendor) selling their business to the purchaser together with all of the things that are necessary for the purchaser to continue operating the business. The vendor must also keep running the business up until the day of sale (the settlement date).

What is a going concern opinion?

Financial statements are generally prepared with an assumption that the business will remain a going concern. … That is, the entity is expected to continue to generate a positive return on its assets and meet its obligations in the ordinary course of business.

Why Is Going Concern important?

The importance of the going concern principle Going concern is an important part of the generally accepted accounting principles. … The going concern principle allows a business to defer some of their prepaid expenses to future accounting periods, rather than recognising them all at once.

What is materiality and give an example?

Definition of Materiality In accounting, materiality refers to the relative size of an amount. … Determining materiality requires professional judgement. For instance, a $20,000 amount will likely be immaterial for a large corporation with a net income of $900,000.

What does cost principle mean?

The cost principle is an accounting principle that requires assets, liabilities, and equity investments to be recorded on financial records at their original cost.

What is the going concern assumption write in your own words?

going concern assumption definition. An accounting guideline which allows the readers of financial statements to assume that the company will continue on long enough to carry out its objectives and commitments. In other words, the accountants believe that the company will not liquidate in the near future.

What do you mean by going concern?

The ‘going concern’ concept, or assumption, is an accountancy term that describes a company which can continue operating without the significant threat of liquidation, and therefore remain in business for the foreseeable future.

What are the auditor’s responsibilities for going concern?

The auditor’s responsibilities are to obtain sufficient appropriate audit evidence regarding, and conclude on, the appropriateness of management’s use of the going concern basis of accounting in the preparation of the financial statements, and to conclude, based on the audit evidence obtained, whether a material …

Why would it be important to disclose a possible going concern issue?

Management is required to assess the conditions that may make financial statement users doubt the entity’s ability to continue as a going concern. … If it is determined that the substantial doubt is able to be mitigated through management plans, the financial statements must disclose the conditions raising that doubt.

What is materiality concept?

Materiality Principle or materiality concept is the accounting principle that concern about the relevance of information, and the size and nature of transactions that report in the financial statements. … For example, in IFRS, information is material if the omission could lead to misleading in decision making.

Which of the following may affect the going concern status of an entity?

Which of the following may affect the going concern status of an entity? High Gearing Ratio (Proportion of Long Term Debt to Equity). … Availability of short term running finance may help an entity to overcome unanticipated cash flow shortage in the short term. Successive trading losses.