Under the going concern principle in GAAP, if substantial doubt exists about a company's ability to fulfill obligations, it must be disclosed.

• A. True
• B. False
• C. Depends on materiality
• D. Only if default risk

Answer: (A)

Substantial doubt about a company’s ability to continue as a going concern triggers disclosure under GAAP. Management must evaluate whether there is substantial doubt for at least one year beyond the date of the financial statements. If such doubt exists, it must be disclosed in the notes, including the factors causing the doubt, the basis for the assessment, and any plans to mitigate the situation. Even if there are mitigating plans, the existence of substantial doubt requires disclosure; auditors may issue an emphasis-of-matter paragraph if the doubt remains unresolved. This is not dependent on materiality or tied only to default risk.