Audit & Assurance: Going Concern

Question 1

Financial indicators that may cast doubt on the going-concern assumption

Answer 1

.Working capital deficit or current ratio <1
.Long-term debt that is maturing and cannot be repaid or refinanced
.Reliance on excessive short-term financing
.Negative operating CF’s

Question 2

Operating indicators that may cast doubt on the going-concern assumption

Answer 2

.Plans to liquidate the company or cease operations
.Departures of key mgt
.Loss of mkt share
.Loss of a key customer
.Inability to obtain key supplies
.Loss of operating license

Question 3

Other indicators that may cast doubt on the going-concern assumption

Answer 3

.Non-compliance with the law
.Material lawsuits against the company that the company will not be able to pay if it loses
.Changes in laws or regulations that will negatively impact the company