Examples of events or conditions, which may give rise to business risks, that individually or collectively may cast significance doubt about the going concern assumptions are set below. This listing is not all – inclusive nor does the existence of one or more of the items always signify that a material uncertainty exists.

Finance

• Fixed – term of withdrawal approaching maturity without realistic prospects of renewal or repayment; or excessive reliance on short – term borrowings to finance long – term assets.
• Indications of withdrawal of financial support by debtors and other creditors.
• Negative operating cash flows indicated by historical or prospective financial statements.
• Adverse key financial ratios.
• Substantial operating losses or significant deterioration in the value of assets used to generate cash flows.
• Arrears or discontinuance of dividends.
• Inability to pay creditors on due dates.
• Inability to comply with the terms of loan agreements.
• Change from credit to cash –on –delivery transactions with suppliers.
• Inability to obtain financing for essential new product development or other essential investments.

Operating

• Loss of key management staff without replacement
• Loss of major market, franchise, licence,or principal supplier.
• Labor difficulties or shortage of important supplies.

Other

• Non-compliance with capital or other statutory requirements.
• Pending legal or regulatory proceedings against the entity that may, if successful, result in claims that are unlikely to be satisfied.
• Changes in legislation or government policy expected to adversely affect the entity.

The significance of such events or conditions often can be mitigated by other factors. For example, the effect of an entity being unable to make its normal debt repayments may be counter-balance by management’s plans to maintain adequate cash flows by alternative means, such as by disposal of assets, rescheduling of loan repayments ,or obtaining  additional capital. Similarly, the loss of a principal supplier may be mitigated by the availability of a suitable alternative source of supply.

BY:
Y.O.OLAJIDE (FCA, FCTI)
MANAGING PARTNER
Olajide and associates Nig.
www.olajideassociates.com