Going Concern Checklist - MONICPA.mn

1 Form AP 120 Index Reference_____ Going Concern Checklist Legal Company Name Client: Balance Sheet Date: Checklist Reviewed by: Date: Instructions: The purpose of this Checklist is to assist the auditor in evaluating information obtained during the audit to determine (1) whether substantial doubt has been raised about the company s continued existence as a Going Concern for a reasonable period of time and (2) the effect, if any, on disclosure in the financial statements and on the auditor s report.

2 Comments should be documented in attached working papers, with appropriate references noted in the right column below. Performed By Workpaper Reference 1. Determine whether audit procedures performed during the audit have identified conditions that could raise substantial doubt about the entity s ability to continue as a Going Concern for a reasonable period of time. Consider the existence or occurrence of factors such as the following when making this determination: a. Negative financial trends: (1) Recurring operating losses (2) Working capital deficiencies (3) Negative cash flows from operations (4) Adverse key financial ratios b.

3 Other negative trends: (1) Default on loans or similar agreements Performed By Workpaper Reference (2) Arrearages in dividends (3) Denial of usual trade credit from vendors (4) Need to seek new sources of financing (5) Need to sell substantial assets (6) Need to restructure debt (7) Noncompliance with statutory or contractual capital requirements c. Internal matters: (1) Labor difficulties, such as work stoppages (2) Substantial dependence on the success of a particular project (3) Uneconomic long-term commitments (4) Need to significantly revise operations d.

4 External matters: (1) Loss of a key customer or supplier (2) Occurrence of uninsured or underinsured catastrophe, such as earthquake or flood (3) Legal proceedings or legislation (4) Loss of a key franchise, patent, or license 2. If conditions or events raise substantial doubt about the entity s ability to continue as a Going Concern for a reasonable period of time, obtain information and gather evidence about management s plans, and perform the following: a. If management plans to dispose of assets, consider the potential effect of the following factors on such plans: Performed By Workpaper Reference (1) Restrictions on disposal of assets, such as covenants limiting such transactions in loan, or similar agreements or encumbrances against assets (2) Apparent marketability of assets that management plans to sell (3) Possible direct or indirect effects of disposal of assets b.

5 If management plans to borrow money or restructure debt, consider the potential effect of the following factors on such plans: (1) Availability of debt financing, including existing or committed credit agreements, such as lines of credit or arrangements for factoring receivables (2) Existing or committed arrangements to restructure or subordinate debt or to guarantee loans to the entity (3) Possible effects on management s borrowing plans of existing restrictions on additional borrowing or the sufficiency of available collateral c.

6 If management plans to reduce or delay expenditures, consider the potential effect of the following factors on such plans: (1) Apparent feasibility of plans to reduce overhead or administrative expenditures, to postpone maintenance or research and development projects, or to lease rather than purchase assets (2) Possible direct or indirect effects of reduced or delayed expenditures d. If management plans to increase ownership equity, consider the potential effect of the following factors on such plans: (1) Apparent feasibility of plans to increase ownership equity, including existing or committed Performed By Workpaper Reference arrangements to raise additional capital (2) Existing or committed arrangements to reduce current dividend requirements or to accelerate cash distributions from affiliates or other investors e.

7 If management plans to rely on arrangements with related and/or third parties to provide or maintain financial support: (1) Inquire of the client s attorney regarding the enforceability of such arrangements. (2) Assess the financial ability of the related and/or third parties to provide additional funds. 3. Evaluate management s plans for dealing with conditions or events that raise substantial doubt about the entity s ability to continue as a Going Concern , and assess the likelihood that management s plans can be effectively implemented.

8 If prospective financial information is available and considered relevant, review and evaluate such information, including the fundamental assumptions used to prepare the prospective information. 4. Evaluate the adequacy of related financial statement disclosures. 5. Consider the effects on the audit report.