Deloitte Going Concern: Evaluating Your Company's Continuity

Evaluating your company's continuity is crucial to its long-term success. A going concern is a company that is expected to continue operating for the foreseeable future, and it's essential to assess this aspect regularly.

Deloitte's going concern evaluation process involves considering factors such as liquidity, profitability, and cash flow. This process helps identify potential issues before they become major problems.

A company's financial statements, including its balance sheet and income statement, provide valuable insights into its financial health. By analyzing these statements, you can identify trends and patterns that may indicate a going concern issue.

Deloitte's evaluation process also considers external factors such as market conditions, economic trends, and industry developments.

If a company is not a going concern, it means there's a risk the company may not survive the next 12 months. Management is required to disclose this fact and provide the reasons why they may not be a going concern.

You might like: What Happened to Lucy in Not Going Out?

Management must identify the basis in which the financial statements are prepared and often disclose these financial reports with an audit report with a going concern opinion. This is a serious matter that requires careful consideration.

Management must also identify the basis in which the financial statements are prepared. This is typically done by considering the company's financial position, cash flow, and other relevant factors.

In some cases, management may need to disclose financial reports with a going concern opinion. This can be a red flag for investors and other stakeholders.

A going concern opinion is typically issued by an auditor if they believe the company may not be able to continue as a going concern. This can be a serious issue that requires immediate attention.

Here are some key points to consider if a company is not a going concern:

Evaluating your company's continuity can be a daunting task, especially when it seems like the world is changing by the minute. Deloitte, the auditor of Dunzo, a hyperlocal delivery company, has cast doubt on its ability to continue as a going concern.

A company is typically considered a going concern if it has sufficient resources to operate indefinitely, but Dunzo's net loss ballooned to Rs 1,802 crore in FY23, a 288 percent increase from the previous year. This significant increase in losses raises concerns about Dunzo's ability to repay its creditors in a bankruptcy event.

Dunzo's total liabilities amount to more than its total assets, making it unable to repay its creditors in a bankruptcy scenario. This is a rare concern raised by auditors, and it's essential to take it seriously.

Dunzo, a hyperlocal delivery company, is facing material uncertainty about its ability to continue as a going concern.

Its auditor, Deloitte, has expressed concerns that Dunzo may not have sufficient resources to operate indefinitely.

Dunzo's net loss ballooned to Rs 1,802 crore in FY23, a 288 percent increase from the previous year.

This significant increase in losses raises concerns about Dunzo's financial stability.

Dunzo's current liabilities exceeded its current assets by Rs 325.8 crore primarily due to high operational costs.

This means the company may struggle to repay its creditors in the event of bankruptcy.

Dunzo's total liabilities amount to more than its total assets, making it unlikely to repay its creditors.

To address these concerns, Dunzo has been trying to line up capital to the tune of $25-30 million.

Despite raising close to $500 million since 2015 from various investors, Dunzo's financial situation remains uncertain.

Evaluating your company's continuity can be a daunting task, but it's essential to prepare for the unexpected. The pandemic has made it challenging for CFOs to predict what's coming next week, let alone next year.

The pandemic is making it hard for CFOs to predict what's coming next week, let alone next year. This uncertainty requires a proactive approach to evaluating your company's continuity.

It's critical to prepare for what may lay ahead, especially if your organization is facing increased going concern risk. This means taking a closer look at your company's financials and operations to identify potential areas of risk.

Evaluating your company's ability to continue as a going concern may not have been a significant challenge in past years. However, the current pandemic has changed the landscape, making it essential to reassess your company's continuity.

The key to evaluating your company's continuity is to focus on the present and near future, rather than trying to predict the distant future. This requires a flexible and adaptable approach to your company's operations and finances.

Accounting Assumptions are crucial in determining the financial health of a company. A going concern is assumed to be financially stable enough to meet its obligations and continue its business for the foreseeable future.

One of the key assumptions made by accountants is that a company will continue to operate as a going concern, unless there is evidence to the contrary. This assumption allows certain expenses and assets to be deferred in financial reports.

If a company is no longer considered a going concern, it must start reporting certain information on its financial statements. This can include negative trends such as denial of credit, continued losses, and lawsuits.

An auditor can give a going concern opinion when they have doubts about the financial longevity of a company. This opinion can have significant implications for investors and stakeholders.

Here are some key differences between a company that is considered a going concern and one that is not:

A going concern assumption is a fundamental principle in accounting, but what does it really mean? The going concern assumption implies that a business will continue to operate for the foreseeable future, which is typically defined as a period of at least 12 months from the balance sheet date.

This assumption is crucial because it affects how assets and liabilities are valued and presented on a company's financial statements. For example, if a company is expected to go out of business soon, its assets may be written down to their liquidation value, rather than their carrying value.

A company's management and auditor must consider the going concern assumption when preparing financial statements, and they must also provide a going concern warning if there's a significant doubt about the company's ability to continue operating.

Take a look at this: Going Concern Business

Fusion Finance's struggles with loan covenants are a stark reminder of the risks involved in a going concern. They've breached their loan covenants again.

Their financial woes are evident in their dwindling cash reserves. In Q2, their cash and cash equivalents stood at just $12.4 million.

This lack of liquidity has forced Fusion Finance to rely on short-term debt to stay afloat. Their current ratio has been steadily declining, a clear sign of financial distress.

Their inability to meet loan covenants has also led to a significant increase in their interest expenses. In Q2, their interest expense was $2.3 million, a 25% increase from the same period last year.

This has put a strain on their already thin profit margins. Their net income has been consistently negative over the past two quarters.

Fusion Finance's situation serves as a cautionary tale for any business facing financial difficulties.

A negative audit can have serious implications for a company. If a company is not a going concern, it's seen as a declining investment opportunity, representing a significantly higher level of risk.

Companies may be revalued by investors, shareholders, or the board, which can be used to price the company for acquisition or seek out a private investor.

The value of the company may need to be written down on financial reports, taking certain accounting measures.

Not being a going concern can lead to credit challenges, where a company may not be able to meet debt covenants, making its debt callable.

New lenders may be reluctant to issue new credit, or any new credit issued will be prohibitively expensive, causing a credit crunch that can affect suppliers.

On a similar theme: How Do Soldiers Not Go Deaf?

COVID-19 has changed the determination of going concern risk for many companies. It's now a primary focus for CFOs.

For companies, the pandemic has turned a routine check-the-box exercise into a top priority.

The stakes are high, and CFOs need to understand the situation clearly. They must communicate effectively with key stakeholders about the company's financial health.

Companies are giving additional thought to a disclosure of doubt over their next 12 months. This shows how seriously they're taking the situation.

Going through the motions won't cut it when evaluating doubt about a company's ability to continue as a going concern. A thorough and responsible determination and disclosure process is essential.

Recommended read: Going Concern Disclosure Example