FAR 1 - Going Concern Flashcards
Define Going Concern?
Financial statement statements are prepared under the going concern basis - meaning entity is expected to remain in existence and to be able to settle all obligations in foreseeable future.
Define imminent liquidation?
Liquidation Basis - entity is no longer considered to be a going concern, financial statements are prepared under the liquidation basis of accounting.
What is management’s responsibility?
Management’s responsibility is to evaluate whether there is substantial doubt an entity’s ability to continue as a going concern - not to exceed one year beyond the date of financial statements.
1) Management should consider if it is PROBABLE ( likely to occur)
2) Management’s evaluation occur for each annual and interim reporting period.
What are mitigating factors?
If conditions or events exist that raise substantial doubt about an entity’s ability to continue as a going concern, managements should consider whether there are plans intended to mitigate those conditions or events will be successful in alleviating the substantial doubt.
If there is no substantial doubt?
No disclosures
Substantial doubt alleviated?
If substantial doubt is alleviated, has to include footnote disclosures
1) primary conditions or events that initially raised substantial doubt about the entity’s ability to continue as going concern
2) Management’s plans that alleviated the substantial doubt
Substantial doubt not alleviated?
If substantial doubt is alleviated, has to include footnote disclosures - no liquidation basis - regular going concern basis with footnote disclosures:
1) primary conditions or events that initially raised substantial doubt about the entity’s ability to continue as going concern
2) Management’s plans that alleviated the substantial doubt
Difference between U.S. GAAP vs IFRS for imminent liquidation?
IFRS does not provide guidance for liquidation basis.
