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The following flowchart depicts the decision process to follow for evaluating whether there is substantial doubt about an entity's ability to continue as a going concern and determining related disclosure requirements.
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The following are examples of adverse conditions and events that may raise substantial doubt about an entity's ability to continue as a going concern. The examples are not all-inclusive. The existence of one or more of these conditions or events does not determine that there is substantial doubt about an entity's ability to continue as a going concern. Similarly, the absence of those conditions or events does not determine that there is no substantial doubt about an entity's ability to continue as a going concern. Determining whether there is substantial doubt depends on an assessment of relevant conditions and events, in the aggregate, that are known and reasonably knowable at the date that the financial statements are issued (or at the date the financial statements are available to be issued when applicable). An entity should weigh the likelihood and magnitude of the potential effects of the relevant conditions and events, and consider their anticipated timing.
  1. a
    Negative financial trends, for example, recurring operating losses, working capital deficiencies, negative cash flows from operating activities, and other adverse key financial ratios
  2. b
    Other indications of possible financial difficulties, for example, default on loans or similar agreements, arrearages in dividends, denial of usual trade credit from suppliers, a need to restructure debt to avoid default, noncompliance with statutory capital requirements, and a need to seek new sources or methods of financing or to dispose of substantial assets
  3. c
    Internal matters, for example, work stoppages or other labor difficulties, substantial dependence on the success of a particular project, uneconomic long-term commitments, and a need to significantly revise operations
  4. d
    External matters, for example, legal proceedings, legislation, or similar matters that might jeopardize the entity's ability to operate; loss of a key franchise, license, or patent; loss of a principal customer or supplier; and an uninsured or underinsured catastrophe such as a hurricane, tornado, earthquake, or flood.
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The following are examples of plans that management may implement to mitigate conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. The examples are not all-inclusive. Below each example is a list of the types of information that management should consider at the date that the financial statements are issued in evaluating the feasibility of the plans to determine whether it is probable that the plan will be effectively implemented within one year after the date that the financial statements are issued.
  1. a
    Plans to dispose of an asset or business:
    1. 1
      Restrictions on disposal of an asset or business, such as covenants that limit those transactions in loan or similar agreements, or encumbrances against the asset or business
    2. 2
      Marketability of the asset or business that management plans to sell
    3. 3
      Possible direct or indirect effects of disposal of the asset or business
  2. b
    Plans to borrow money or restructure debt:
    1. 1
      Availability and terms of new debt financing, or availability and terms of existing debt refinancing, such as term debt, lines of credit, or arrangements for factoring receivables or sale and leaseback of assets
    2. 2
      Existing or committed arrangements to restructure or subordinate debt or to guarantee loans to the entity
    3. 3
      Possible effects on management's borrowing plans of existing restrictions on additional borrowing or the sufficiency of available collateral
  3. c
    Plans to reduce or delay expenditures:
    1. 1
      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. 2
      Possible direct or indirect effects on the entity and its cash flows of reduced or delayed expenditures
  4. d
    Plans to increase ownership equity:
    1. 1
      Feasibility of plans to increase ownership equity, including existing or committed arrangements to raise additional capital
    2. 2
      Existing or committed arrangements to reduce current dividend requirements or to accelerate cash infusions from affiliates or other investors.
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