Reference no: EM132558308

IAS 1 Presentation of Financial Statements requires management to assess a company's ability to continue as a going concern. The going concern assessment needs to be performed up to the date on which the financial statements are issued. The assessment relates to at least the first twelve months after the Statement of Financial Position date, or after the date the financial statements will be signed, but the timeframe might need to be extended.

Material uncertainties, for example, the coronavirus effects that cast significant doubt on the company's ability to operate under the going concern basis need to be disclosed in the financial statements. It is highly likely that many companies large and small, and particularly in certain sectors, will have issues relating to the coronavirus that need to be considered by management. There will be a wide range of factors to take into account in going concern judgments and financial projections including travel bans, restrictions, government assistance and potential sources of replacement financing, financial health of suppliers and customers and their effect on expected profitability and other key financial performance ratios including information that shows whether there will be sufficient liquidity to continue to meet obligations when they are due.

Problem 1: You have been hired to advise management of two companies: one is an airline company and the other is in the pharmaceutical industry on how management should assess the existing and anticipated effects of COVID-19 on each of the company's activities and the appropriateness of the use of the going concern basis.