ACCA Audit and Assurance (F8) Practice Exam

Which of the following is NOT a factor that may cast doubt on the going concern basis?

1. Negative cash flows

2. Emergence of successful competitors

3. Financial backing from unknown sources

4. Inability to finance new products

The correct answer is: Financial backing from unknown sources

The correct choice highlights that financial backing from unknown sources is not a factor that may inherently cast doubt on a business's ability to continue as a going concern. Financial backing, even if it comes from unknown sources, can indicate potential support for the business, possibly providing necessary liquidity or investment to sustain operations. This may alleviate concerns regarding the continuation of the business. In contrast, negative cash flows, the emergence of successful competitors, and an inability to finance new products are clear indicators that can create uncertainty about a company’s financial viability. Negative cash flows suggest that a company is not generating enough liquidity to meet its obligations, indicating potential operational issues. The presence of successful competitors could threaten market share and profitability, impacting long-term sustainability. Finally, an inability to finance new products could hinder a company’s ability to innovate and adapt to market changes, ultimately affecting its survival. Therefore, while the other factors pose direct risks to the going concern assumption, financial backing from unknown sources does not automatically imply a risk and may, in fact, provide a lifeline for a struggling business.