Going concern indicators, customer loss classification?

3 answers

• Hi all, quick one on this because it's a subtly that catches loads of people out. IAS 1 itself doesn't actually split going concern indicators into 'financial' vs 'operating' buckets, that's a teaching/Kaplan thing that comes more from the auditing standard ISA 570 (which has explicit appendix examples grouped that way). Under that ISA 570 lens, loss of a major customer is classed as an operating indicator, not a financial one (financial difficulties means things like negative net current liabilities, loan covenant breaches, inability to pay suppliers etc). So you're spot on, it's operational in nature but of course it can rapidly cause the financial difficulties if the revenue hole isn't filled. Just remember, for Accounting/FR exams we're assessing if there's a material uncertainty that may cast significant doubt on going concern per IAS 1 para 25, and the indicators (whatever label) are just prompts for that assessment, not a rigid box ticking exercise. The examiner loves it when you link an operating event through to its potential to create a liquidity crunch, so don't just stop at shouting 'it's an operating indicator', talk the chain of events. any help appreciated cheers

  Aisha M. · 2mo ago

  0 votes

• imo the classification itself is a distraction. In the FR exam you get marks for identifying the indicator yes but the 2-3 easy marks come from linking it to the cash flow forecast and stating whether it creates a material uncertainty per IAS 1.25. If you just label it operating and move on you've left half the marks on the table. I'd do the July 2023 QB question on going concern twice, it has a lost customer scenario and the marking guide wants you to say 'this casts significant doubt because revenue drops 40% and no committed replacement, therefore a material uncertainty exists and disclosure is needed'. Thats the pattern. Cheers

  Danny R. · 2mo ago

  0 votes

• Hi all, just a quick add on from a CS perspective. The same logic of treating a lost customer as an operating trigger carries through into the Advanced Case Study, but there the exam usually wants you to pick it up from the AI industry narrative and then explicitly tie it to the going concern assessment in Q1. Looking at the exam feedback from a recent Case Study sitting, the examiner made the point that candidates who simply flagged the loss of a major customer as a going concern indicator often missed the judgement marks; you need to demonstrate how that operating risk feeds into a cash flow stress test and then form a clear recommendation on whether a material uncertainty exists, and what disclosure or board advice flows from that. So the professional skill is less about classification and more about assimilating that AI snippet early, structuring the risk section of your report around it, and applying judgement to conclude on viability. Cheers

  Grace W. · 1mo ago

  0 votes