F2 M2 Going Concern

Question 1

Management is required to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for a reasonable period of time not to exceed _____.

Answer 1

One year beyond the date the financial statements are issued

Question 2

A major difference between US GAAP and IFRS guidance for consideration of going concern is:
A. IFRS requires the board of directors to evaluate the entity’s ability to continue as a going concern; GAAP requires management to perform the evaluation
B. Going concern is a fundamental assumption in US GAAP; but not in IFRS
C. IFRS does not offer guidance on the liquidation of accounting while GAAP provides guidance
D. US GAAP requires disclosures related to going concern whereas IFRS requires a supplemental schedule showing the balance sheet as if the entity loses its going concern status

Answer 2

C

Question 3

Both IFRS and GAAP require the evaluation of going concern status to be performed by _____.

Answer 3

Management

Question 4

Both IFRS and GAAP require _____ when there is doubt about an entity’s status as a going concern.

Answer 4

Relevant disclosures

Question 5

Management has plans to mitigate conditions causing substantial doubt about the entity’s ability to continue as a going concern. Management believes that those plans will be effectively implemented and successful in mitigating the adverse conditions. The financial statements should be prepared _____.

Answer 5

Under the going concern basis of accounting with footnote disclosures explaining the conditions that originally raised doubt about the entity’s status as a going concern. Additional footnote disclosures include management’s evaluation of the significance of those conditions and the description of management’s plans that alleviated the substantial doubt.

Question 6

If a company is not considered a going concern, it’s financial statements should be prepared using the ____ basis of accounting.

Answer 6

Liquidation basis of accounting

Question 7

Which one does not specify the basis of accounting to be used by an entity for which there exists substantial doubt about its ability to continue as a going concern? IFRS or GAAP

Answer 7

IFRS

Question 8

When discussing going concern, which p word is used in determining an entity’s ability to continue as a going concern?

Answer 8

Probable (not possible)

Question 9

Consideration should be given to an entity’s plans to mitigate the conditions or events that raise substantial doubt about its ability to continue as a going concern only if (2 requirements are met)

Answer 9

It is probable that the plans will be effectively implemented, and
It is probable that the implemented plans will be successful in mitigating the adverse conditions or events

Question 10

Under IFRS, disclosure regarding doubt about an entity’s ability to continue as a going concern is required when?

Answer 10

When management is aware of material uncertainties that may give rise to substantial doubt about the entity’s ability to continue as a going concern (at least 1 year)

Question 11

An entity is considered a going concern if it is reasonably expected to ______ and settle all of its ______.

Answer 11

If it is reasonably expected to remain in existence and settle all of its obligations for the foreseeable future

Question 12

Define liquidation of accounting?

Answer 12

It is very responsive to what the users would want, assets less liabilities and determine a time table of how quickly the shareholders would get their money

Question 13

If there is substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of management’s plans, the financial statements should be prepared under the ____ basis.

Answer 13

Going concern basis

Question 14

If there is substantial doubt about an entity’s ability to continue as a going concern, and the substantial doubt is not alleviated as a result of management’s plans, the financial statements should be prepared under the ____ basis.

Answer 14

Going concern basis

Question 15

If there is substantial doubt about an entity’s ability to continue as a going concern, and the substantial doubt is not alleviated as a result of management’s plans, the footnotes should include 3 things:

Answer 15

The primary conditions or events that raise the substantial doubt
Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
Management’s plans that are intended to mitigate the adverse conditions

Question 16

If there is substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of management’s plans, the footnotes should include 3 things:

Answer 16

The primary conditions or events that initially raised the substantial doubt
Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
Management’s plans that alleviated the substantial doubt

Question 17

US GAAP requires the _____ basis of accounting if liquidation is imminent (1 year); what does IFRS say

Answer 17

Liquidation basis of accounting

IFRS does not provide guidance