By contrast, the going concern assumption is the opposite of assuming liquidation, which is defined as the process when a company’s operations are forced to a halt and its assets are sold to willing buyers for cash. Even if the company’s future is questionable and its status as a going concern appears to be in question – e.g. there are potential catalysts that could raise significant concerns – the company’s financials should still be prepared on a going concern basis. Before an auditor issues a going concern qualification, company leadership will be given an opportunity to create a plan to take corrective actions that can improve the outlook for the business. If the auditor determines the plan can be executed and mitigates concerns about the business, then a qualified opinion will not be issued. It’s given when the auditor has doubts about the company and the assumption that it is a going concern.

A company remains a going concern when the sale of assets does not impair its ability to continue operation, such as the closure of a small branch office that reassigns the employees to other departments within the company. In our experience, if there are such material uncertainties, then the company usually provides disclosure as part of the basis of preparation note in the financial statements. Impacts from a fall and winter COVID-19 surge may bring further uncertainty to many companies. Management should continually evaluate the effects of COVID-19 on the company’s going concern assessment, including information obtained after the reporting date and up to the date the financial statements are authorized for issuance. The auditor is required by the Securities and Exchange Commission to disclose in the financial statements of a publicly traded company whether going concern status is in doubt. This can protect investors from continuing to risk their money on a business that may not be viable for much longer.

The eclipse gives astronomy clubs an opportunity to shine

In fact, KPMG LLP was the first of the Big Four firms to organize itself along the same industry lines as clients. If a company’s liquidation value – how much its assets can be sold for and converted into cash – exceeds its going concern value, it’s in the best interests of its stakeholders for the company to proceed with the liquidation. The valuation of companies in need going concern meaning of restructuring values a company as a collection of assets, which serves as the basis of the liquidation value. Often, management will be incentivized to downplay the risks and focus on its plans to mitigate the conditional events – which is understandable given their duties to uphold the valuation (i.e. share price) of the company – yet the facts must still be disclosed.

• IFRS Standards do not prescribe how management should evaluate its plans to mitigate the effects of these events or conditions in the going concern assessment.
• Management should continually evaluate the effects of COVID-19 on the company’s going concern assessment, including information obtained after the reporting date and up to the date the financial statements are authorized for issuance.
• On the other hand, a company may be operating at a profit buts its long-term liabilities are coming due and not enough money is being made.
• Climate change is bringing different types of challenges to each region of the country.
• If a company’s liquidation value – how much its assets can be sold for and converted into cash – exceeds its going concern value, it’s in the best interests of its stakeholders for the company to proceed with the liquidation.
• “I recognize that there are going to be people who just don’t trust the science and just don’t trust the public service announcements and are just going to ignore the eclipse as much as they can,” says Chou.

This term also refers to a company’s ability to make enough money to stay afloat or to avoid bankruptcy. If a business is not a going concern, it means it’s gone bankrupt and its assets were liquidated. As an example, many dot-coms are no longer going concern companies after the tech bust in the late 1990s. For example, under US GAAP, the look-forward period for a company with a December 31, 20X0 balance sheet date and financial statements issued on March 31, 20X1 is the 12-month period ended March 31, 20X2. Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.

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In order for a company to be a going concern, it usually needs to be able to operate with a significant debt restructuring or massive financing overhaul. Therefore, it may be noted that companies that are not a going concern may need external financing, restructuring, asset liquidation, or be acquired by a more profitable entity. Effects that scientists had long predicted would result from global climate change are now occurring, such as sea ice loss, accelerated sea level rise, and longer, more intense heat waves. Management’s plans are ignored under Step 1, but considered under Step 2, to determine if they alleviate the substantial doubt raised in Step 1. Receive the latest financial reporting and accounting updates with our newsletters and more delivered to your inbox. KPMG’s guide provides interpretive guidance, including Q&As and illustrative examples, on the application of ASC 853.