From a CFE perspective, which items are used to assess going concern in financial reporting?

• A. Liquidity, cash flow forecasts, financing plans, and management’s going-concern disclosures
• B. Tax liabilities and tax compliance history
• C. Inventory turnover and cost of goods sold
• D. Market share and price-earnings ratio

Answer: (C)

Going concern looks at whether the entity can continue operating and meet its obligations in the foreseeable future. To judge that, the most relevant evidence comes from how easily the entity can cover its obligations and how it plans to stay funded. Liquidity shows the available resources to meet near-term needs, cash flow forecasts reveal timing gaps between inflows and outlays, financing plans show how any shortfalls will be funded, and management’s going-concern disclosures communicate uncertainties and the steps being taken to address them. These items directly address the entity’s ability to continue operations.

Tax liabilities and compliance history don’t directly indicate ongoing viability. Inventory turnover and cost of goods sold pertain to efficiency and profitability, not the sustainability of the entity’s operations. Market share and price-earnings ratio reflect external market performance and valuation, not the internal ability to continue in business.