Mention any four financial events or conditions that, individually or collectively, may cast significant doubt on the entity's ability to continue…

CA Intermediate · Auditing and Ethics · MTP · May 2024
Mention any four financial events or conditions that, individually or collectively, may cast significant doubt on the entity's ability to continue as going concern.

Suggested Answer and Working Notes:

Financial events or conditions that may cast significant doubt on the entity's ability to continue as going concern: (i) Net liability or net current liability position. (ii) Fixed-term borrowings approaching maturity without realistic prospects of renewal or repayment; or excessive reliance on short term borrowings to finance long term assets. (iii) Indications of withdrawal of financial support by trade payables. (iv) Negative operating cash flows indicated by historical or prospective financial statements. (v) Adverse key financial ratios. (vi) Substantial operating losses or significant deterioration in the value of assets used to generate cash flows. (vii) Arrears or discontinuance of dividends. (viii) Inability to pay trade payables on due dates. (ix) Inability to comply with terms of loan agreements. (x) Change from credit to cash-on-delivery transactions with suppliers. (xi) Inability to obtain financing for essential new product development or other essential investments.

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