Which of the following is a condition that indicates potential going concern issues?

• A. Net liability
• B. Increased market share
• C. Growing profits
• D. High liquidity

Answer: (A)

The main idea here is recognizing indicators that a business may not be able to continue operating. A net liability position—where the company’s liabilities exceed its assets—directly points to potential going-concern problems. If liabilities outweigh assets, the entity may struggle to meet obligations as they come due and to fund ongoing operations, especially if cash flow is tight or financing becomes hard to obtain. This is a classic red flag that auditors look for when assessing whether the entity can continue as a going concern.

In contrast, signs like increasing market share or growing profits suggest improving performance and do not raise concerns about going concern. High liquidity also indicates the company has cash to meet obligations, which reduces going-concern risk.