NIF A-2: Uncertainty about Going Concern

How to assess the continuity of a business and what to disclose in the financial statements

Introduction

The NIF A-2 establishes that financial statements must be prepared under the hypothesis that going concern, that is, assuming that the entity will continue to operate for the foreseeable future, unless there is evidence to the contrary.
If they arise significant uncertainties that put this continuity at risk, management is obliged to evaluate, document and, where appropriate, disclose them in the notes to the financial statements.

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Factors to Evaluate

The standard requires the administration to consider at least three elements:

1. Events and conditions which may generate uncertainty (for example, lack of liquidity, unpaid debts, recurring losses, legal claims).
2. Risk mitigation actions, such as restructuring plans, obtaining financing or asset sales.
3. Importance of uncertainties detected and if they significantly affect the viability of the entity.

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Examples of Uncertainties

Some risk indicators that may call into question the company's continuity are:

• Loss of key customers or drastic reduction in sales.
• Insufficient liquidity to meet short-term obligations.
• Lack of funding sources or non-compliance with covenants.
• Accumulated losses that erode equity.
• High levels of debt without the possibility of refinancing.
• External risks such as economic crises, regulatory changes or natural disasters.

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Mitigation Actions

When the company faces uncertainty, it can implement measures such as:

• Sale of assets to generate liquidity.
• Debt renegotiation with banks or suppliers.
• Search for investors to strengthen capital.
• Reduction of expenses and adjustment to the business model.
• Diversification of customers and markets to reduce dependency.

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Evaluation Scenarios

According to NIF A-2, the company can be classified in three situations:

1. Business underway with no major uncertainties: No additional disclosures required.
2. Going business with significant uncertainties: All relevant information (events, trials, action plans and their effectiveness) must be disclosed in notes.
3. Going business undergoing legal reorganization: When the entity enters into bankruptcy or similar proceedings, revealing special information about restructuring and commitments to creditors.

If the conclusion is that the entity it is not a going concern, the financial statements must be prepared in accordance with liquidation criteria (Chapter 80 of the NIF).

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Practical Example

Let's imagine a company XYZ Commercial, SA de CV, dedicated to the sale of auto parts:

• In 2024 reports recurring losses for $15 million.
• Has bank debts with upcoming maturities and does not have sufficient liquidity.
• Its main client, which represents 40% of sales, canceled contracts.

The administration assesses the situation and concludes:

• They exist important uncertainties that put continuity at risk.
• However, a negotiation is underway debt restructuring, it is planned sale of a warehouse and there are talks with investors for a capital increase.

In this case, Commercial XYZ must reveal in notes:

1. The events and conditions that generate uncertainty.
2. The mitigation actions you plan to implement.
3. The result of your evaluation of the feasibility and effectiveness of these measures.

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Conclusion

The NIF A-2 seeks to ensure that the financial statements clearly reflect whether the company has the capacity to continue operating as a going concern.
For investors, creditors and users of financial information, these disclosures are key to assessing risks, especially in contexts of economic crises, regulatory changes or internal management problems.