In going concern testing, which procedure involves enquiries of directors, company bankers and solicitors?

In going concern testing, which procedure involves enquiries of directors, company bankers and solicitors?

• A. Enquiries of directors, company bankers and company solicitors
• B. Review latest management accounts
• C. Review aged receivables analysis
• D. Assess reasonableness of cash flow forecast

Answer: (A)

Going concern testing relies on gathering evidence from people who know the business well and from external sources who can comment on its future prospects. Enquiries of directors, the company’s bankers and its solicitors are a key way to obtain this evidence. Directors can explain management plans, anticipated funding needs, and actions planned to address potential problems. Bankers can confirm whether facilities are still available, levels of ongoing liquidity, and any covenant or financing risks. Solicitors can highlight potential legal disputes, contractual obligations, or regulatory issues that could affect cash flows or continuity. Together, these enquiries provide a rounded view of the entity’s ability to keep operating in the foreseeable future. While reviewing management accounts, examining aged receivables, or testing the cash flow forecast are useful activities, they rely mainly on internal records or forecast plausibility. They do not by themselves capture the external and governance perspectives obtained from directors, bankers, and solicitors, which is why this procedure is the most appropriate for going concern assessment.

Going concern testing relies on gathering evidence from people who know the business well and from external sources who can comment on its future prospects. Enquiries of directors, the company’s bankers and its solicitors are a key way to obtain this evidence. Directors can explain management plans, anticipated funding needs, and actions planned to address potential problems. Bankers can confirm whether facilities are still available, levels of ongoing liquidity, and any covenant or financing risks. Solicitors can highlight potential legal disputes, contractual obligations, or regulatory issues that could affect cash flows or continuity. Together, these enquiries provide a rounded view of the entity’s ability to keep operating in the foreseeable future.

While reviewing management accounts, examining aged receivables, or testing the cash flow forecast are useful activities, they rely mainly on internal records or forecast plausibility. They do not by themselves capture the external and governance perspectives obtained from directors, bankers, and solicitors, which is why this procedure is the most appropriate for going concern assessment.