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ACCA Applied Knowledge · Financial Accounting · Duties and responsibilities of those charged with governance

Which of the following is a duty of the directors of a company in respect of going concern when preparing the financial statements?

Directors must assess whether the company can continue as a going concern and disclose any material uncertainties that cast doubt on it. The auditor only reviews this assessment, and the break-up basis applies only where going concern is no longer appropriate.

  1. ATo assess the company's ability to continue as a going concern and disclose material uncertaintiesCorrect
  2. BTo guarantee that the company will continue trading for at least ten years
  3. CTo leave the assessment to the external auditor, who decides the basis of preparation
  4. DTo prepare the financial statements on a break-up basis in every case

Explanation

Management, i.e. the directors, must assess whether the entity can continue as a going concern and disclose any material uncertainties. The auditor reviews that assessment but does not make it. Break-up basis is used only when the entity is not a going concern, and no fixed ten-year guarantee is required.

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