What are indicators of a going concern uncertainty?
Indicators of a going concern uncertainty are events or conditions that may cast significant doubt on an entity's ability to continue operating in the foreseeable future. Examples of such indicators include:
- Negative cash flows: An entity experiencing negative cash flows for an extended period may indicate that it is not able to generate sufficient cash to meet its obligations.
- Losses: An entity that has incurred losses for an extended period may indicate that it is not able to generate sufficient profits to support its ongoing operations.
- Loan defaults: An entity that has defaulted on loan agreements or has breached covenants may indicate that it is not able to meet its financial obligations.
- Unavailability of credit: An entity that is unable to obtain credit on favorable terms or at all may indicate that it is experiencing financial difficulties.
- Legal proceedings: An entity that is subject to legal proceedings that could result in significant liabilities or penalties may indicate that it is facing significant financial difficulties.
- Changes in management or key personnel: An entity that has experienced significant turnover in key management or personnel positions may indicate that it is facing operational or strategic challenges.
- Loss of key customers or suppliers: An entity that has lost significant customers or suppliers may indicate that it is facing challenges in its industry or market.
Overall, these indicators may suggest that an entity is facing financial or operational difficulties that may cast significant doubt on its ability to continue operating in the foreseeable future, and may require additional disclosures in the financial statements.