Impact and Disclosure Required in Financial Statements if Going Concern Assumption Is Not Appropriate
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- Last Updated on 21 February, 2024
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Ind AS 1, Presentation of Financial Statements, requires while preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, the entity shall disclose those uncertainties.
In this story, we have discussed a case where a company is making losses and not qualifying for any of the tenders. The current contract is expiring in December and it is confirmed only after the end of the reporting period and before the approval of the financial statements, that no further contact is secured, it is clear that the company has only one loss-making tender in hand.
Ind AS 10 requires that if entity’s operations are expected to come to an end, the entity needs to make a judgement as to whether it has any realistic possibility to continue or not.
On reading the provisions of Ind AS 1 and Ind AS 10, we have discussed the impact and disclosure required in financial statements when material uncertainty over going concern arise or going concern holds invalid.
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