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Which of the following is not a potential indicator of going concern problems for a client?

a. Negative trends in key financial ratios.

b. Loss of key personnel.

c. Plan to sell nonessential assets.

d. Default on a loan.

User Feerlay
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8.4k points

1 Answer

5 votes

Final answer:

The plan to sell nonessential assets is not a potential indicator of going concern problems for a client. The correct answer is c. Plan to sell nonessential assets.

Step-by-step explanation:

When assessing potential signs of financial distress for a client, adverse trends in critical financial ratios, the departure of key personnel, and a default on a loan are all conceivable indicators.

However, it's important to note that devising a plan to sell nonessential assets doesn't inherently represent a negative signal.

Instead, strategically divesting nonessential assets can be a proactive measure to enhance liquidity and fortify a company's overall financial standing.

Unlike other indicators that may signify underlying financial challenges, such asset sales can be a deliberate and constructive strategy employed by businesses to improve their financial health.

Consequently, the evaluation of a company's going concern should take into account the nuanced nature of its financial decisions, recognizing that certain actions, like selling nonessential assets, can be a well-considered tactic to strengthen the company's financial resilience.

Hence, the correct answer is c. Plan to sell nonessential assets.

User Wypul
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7.7k points
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