Accounting & Auditing
Going Concern Concept
A material uncertainty exists when the potential impact and likelihood are such that:
A. Appropriate disclosure is necessary for fair presentation
B. No disclosure can ever be made
C. Liquidation is certain
D. Profit must be zero
Correct Answer: A
Material uncertainty requires transparent disclosure so users can understand the significant doubt.
Accounting & Auditing
Going Concern Concept
Going-concern disclosures are particularly important for:
A. Users assessing liquidity, solvency and future viability
B. Only warehouse staff
C. Only customers paying cash
D. No users
Correct Answer: A
Such disclosures help users understand significant uncertainty about the entity's future viability.
Accounting & Auditing
Going Concern Concept
When evaluating financing support from an owner, management should consider:
A. Owner's ability and intention to provide support
B. Owner's age only
C. Logo design
D. Number of invoices
Correct Answer: A
Support is meaningful only if the supporting party has both the ability and intention to provide it.
Accounting & Auditing
Going Concern Concept
A viable restructuring plan can:
A. Mitigate going-concern risks if realistic and executable
B. Automatically eliminate all liabilities
C. Remove need for disclosure in every case
D. Guarantee profit
Correct Answer: A
A credible restructuring plan may mitigate risk, but its feasibility and remaining uncertainty must be assessed.
Accounting & Auditing
Going Concern Concept
A supplier refusing further credit may be relevant because it can affect:
A. Ability to continue operations and liquidity
B. Share capital directly
C. Depreciation method only
D. Audit independence only
Correct Answer: A
Restricted supplier credit can disrupt operations and cash flows.
Accounting & Auditing
Going Concern Concept
Dependence on one customer may be relevant to going concern particularly when:
A. Loss of that customer would threaten viability
B. The customer pays early
C. Sales are diversified
D. Cash is abundant
Correct Answer: A
Concentration risk matters when loss of the customer could materially impair operations.
Accounting & Auditing
Going Concern Concept
If management concludes no realistic alternative exists except cessation, it should:
A. Reconsider use of the going-concern basis
B. Continue unchanged without disclosure
C. Recognize future sales
D. Ignore the conclusion
Correct Answer: A
Cessation or liquidation with no realistic alternative generally makes going concern inappropriate.
Accounting & Auditing
Going Concern Concept
A key distinction is that going concern is:
A. An underlying basis/assumption, not a guarantee of solvency
B. A bookkeeping ledger
C. A tax rate
D. An audit sampling method
Correct Answer: A
Going concern is a financial-reporting basis, not a guarantee that failure cannot occur.
Accounting & Auditing
Going Concern Concept
Which condition most strongly supports going concern?
A. Positive cash-flow forecasts supported by committed finance
B. Unfunded losses with overdue debt
C. Loss of license to operate
D. No access to suppliers
Correct Answer: A
Supported forecasts and committed finance are positive evidence.
Accounting & Auditing
Going Concern Concept
Liquidation values may become more relevant when:
A. The entity is no longer a going concern
B. Profits rise
C. Inventory turnover improves
D. Cash sales increase
Correct Answer: A
When continuation is not assumed, recoverable amounts under liquidation/cessation conditions may become relevant.
Accounting & Auditing
Going Concern Concept
The phrase 'foreseeable future' in going-concern assessment indicates:
A. A forward-looking period, not an indefinite guarantee
B. Exactly one week
C. Forever
D. Only the reporting date
Correct Answer: A
Going concern is assessed over a forward-looking horizon required by the applicable framework.
Accounting & Auditing
Going Concern Concept
Which event after reporting date may affect going-concern assessment?
A. Loss of major financing before statements are authorized
B. Routine stationery purchase
C. Minor typo correction
D. Change of office paint
Correct Answer: A
Significant post-reporting events can provide relevant evidence about ability to continue.
Accounting & Auditing
Going Concern Concept
A going-concern problem may require disclosure even when the going-concern basis remains:
A. Appropriate
B. Illegal
C. Impossible
D. Cash-based
Correct Answer: A
The basis may remain appropriate while material uncertainty requires disclosure.
Accounting & Auditing
Going Concern Concept
An auditor's consideration of going concern primarily involves evaluating:
A. Management's assessment and related evidence/disclosures
B. Setting product prices
C. Approving dividends
D. Preparing all management forecasts personally
Correct Answer: A
Auditors evaluate management's assessment and the adequacy of evidence and disclosures.
Accounting & Auditing
Going Concern Concept
Financial statements prepared on a going-concern basis assume liabilities will generally be settled:
A. In the normal course of business
B. Only after liquidation
C. Never
D. Only by issuing shares
Correct Answer: A
Normal-course settlement is consistent with continued operations.
Accounting & Auditing
Going Concern Concept
Management plans to sell non-core assets to meet obligations. The assessment should consider whether the plan is:
A. Feasible and realistic
B. Secret
C. Unrecorded
D. Profitable in every possible scenario
Correct Answer: A
Mitigating plans should be evaluated for feasibility and likely effectiveness.
Accounting & Auditing
Going Concern Concept
A major loan becoming immediately repayable due to covenant breach can:
A. Create a going-concern risk
B. Automatically become revenue
C. Reduce liabilities to zero
D. Increase inventory
Correct Answer: A
Acceleration of debt can create severe liquidity pressure.
Accounting & Auditing
Going Concern Concept
Going concern does NOT mean that a business will:
A. Continue forever with certainty
B. Continue for the foreseeable future
C. Assess its ability to meet obligations
D. Consider financing needs
Correct Answer: A
Going concern is not a guarantee of perpetual existence.
Accounting & Auditing
Going Concern Concept
The going concern assumption primarily affects:
A. Basis of preparation and measurement/classification judgments
B. Company logo
C. Voucher numbering
D. Cheque signatures only
Correct Answer: A
The assumption underlies how assets and liabilities are measured and presented.
Accounting & Auditing
Going Concern Concept
A company with net current liabilities may still be a going concern if:
A. It has credible financing and cash-flow plans
B. It has no records
C. It ignores creditors
D. It stops preparing accounts
Correct Answer: A
Negative working capital is an indicator, but credible support and financing can mitigate the risk.