When accounting goes unaccounted for

This memo is a critical part of the financial reporting process, and its contents can have a significant impact on the decisions of various stakeholders, including investors, lenders, and regulatory bodies. Economic uncertainty has been prevalent in global markets over the last several years due to many unexpected macro events – from COVID-19 and the related supply chain disruptions to international conflicts and rising interest rates. While some companies thrive from uncertainty, others may see their financial performance, liquidity and cash flow projections negatively impacted.

📆 Date: June 28-29, 2025🕛 Time: 8:30-11:30 AM EST📍 Venue: OnlineInstructor: Dheeraj Vaidya, CFA, FRM

• The going concern standard requires management to make a reasonable effort to identify these conditions and events.
• KPMG handbooks that include discussion and analysis of significant issues for professionals in financial reporting.
• Independence and professional skepticism are critical in identifying potential misstatements or omissions.
• For example, the rise and fall of volume in steel products may affect revenue, hindering profitability due to fixed cost.
• The revised standard will also increase consistency in auditing practices and strengthen transparency through communications and auditor reporting on matters related to going concern in a consistent manner.
• According to GAAP guidance, disclosures must be made as soon as a conclusion of substantial doubt is reached.
• However, generally accepted auditing standards (GAAS) do instruct an auditor regarding the consideration of an entity’s ability to continue as a going concern.

Credit ratings from agencies like Moody’s or Standard & Poor’s can provide insights into a company’s financial stability. A downgrade in these ratings often signals increased risk for investors and creditors. Beyond compliance, the principle fosters transparency and trust how is sales tax calculated among stakeholders, including investors, creditors, and regulators.

Step 2: Consider management’s plans if substantial doubt is raised

Management must also consider the likelihood, magnitude and going conern timing of the potential effects of any adverse conditions and events. Similarly, US GAAP financial statements are prepared on a going concern basis unless liquidation is imminent. Disclosures are required if events and circumstances raise substantial doubt about the entity’s ability to continue as a going concern.

Management and Auditor Responsibilities

A compromised going concern status can trigger significant operational and strategic challenges. For example, banks might tighten lending conditions or withdraw credit lines, while investors could divest, exacerbating liquidity issues. Helping clients meet their business challenges begins with an in-depth understanding of the industries in which they work. In fact, KPMG LLP was the first of the Big Four firms to Accounting for Technology Companies organize itself along the same industry lines as clients. If a company is not a going concern, its management is required to disclose this fact and must provide the reasons for the negative conclusion. The statements should also show management’s interpretation of the conditions and its plans to mitigate them.

• Under IFRS Standards, management assesses all available information about the future, considering the possible outcomes of events and changes in conditions, and the realistically possible responses to such events and conditions.
• If conditions are changing rapidly, management’s evaluation may need to be updated frequently up through the date of issuance of the related financial statements.
• For investors, a stable going concern status signals potential for growth and profitability, encouraging capital commitments.
• The auditors of the company are required to analyze the going concern status of a business.
• A going concern is a company that is financially stable and, at the very least, is likely to survive for the next 12 months.

The KPMG Australia Cheaters Have Been Disciplined, Much Slapping of Wrists All Around

Continuation of an entity as a going concern is presumed as the basis for financial reporting unless and until the entity’s liquidation becomes imminent. Preparation of financial statements under this presumption is commonly referred to as the going concern basis of accounting. If and when an entity’s liquidation becomes imminent, financial statements are prepared under the liquidation basis of accounting (Financial Accounting Standards Board, 20141). The accounting treatment of going concern is an important consideration in the preparation of financial statements. It assumes that an entity will continue to operate for the foreseeable future and that it has the resources to meet its obligations as they come due. This assumption underlies all of the financial statements and is a fundamental principle of accounting.

To ensure reliability, auditors often use sensitivity analyses, stress-testing financial models to evaluate how adverse scenarios might affect viability. Adhering to standards like ISA 570 (Revised), auditors uphold the integrity of financial reporting. High debt levels relative to equity, combined with rising interest costs, can strain financial health. Imminent debt maturities without clear plans for repayment or refinancing are particularly concerning.