Consider the Following Scenario: You Are in a Position of Management

Essay

Consider the following scenario: You are in a position of management at Varazdin Wireless, an international telecommunications provider. In preparing financial statements, what qualitative and quantitative factors would you use in determining whether the entity is a going concern? Is the company a going concern?
Background: Varazdin Wireless has suffered five years of consecutive losses as a result of shifting consumer preferences. Last week, the CEO issued a press release highlighting that the company has a new proprietary mobile smartphone in the final stages of development. The company itself does not have requisite capital to finance the production of the device, and the company is already behind on its repayments to creditors. In an interview on a business television network, the company's CFO celebrated the anticipated next chapter of Varazin's business, citing the unparalleled capability of its new phone. The company's consultants believe that manufacturing the proprietary device will be a profitable line of business as it has tested exceptionally well with focus groups. Production has not begun because the company believes it has exhausted all available avenues for financing. The CEO's announcement and CFO's interview come on the heels of a blistering article in the Wall Street Diary highlighting that the international conglomerate has a rapidly decreasing consumer base. This report is consistent with internal projections forecasting that current consumer trends will lead to the company's insolvency and forced liquidation before the end of next year.