Insolvency
Insolvency concerns a person or entity’s inability to meet obligations under the relevant legal tests, which may include inability to pay debts when due or balance-sheet conditions. Its legal consequences depend on jurisdiction. Financial distress may also be relevant to the auditor’s going-concern assessment.
Worked example
A company cannot pay major debts when due; the auditor evaluates the financing position, evidence and disclosures relevant to going concern.
Common mistake
Do not assume a temporary cash shortage automatically satisfies every legal insolvency test or determines the audit opinion.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AAA (INT) | Supporting | September 2026–June 2027 |