Fortfc3bchrungsprognose

What Is Fortführungsprognose?

Fortführungsprognose, often translated as "going concern prognosis" or "continuing existence forecast," is a critical assessment in Financial Reporting and accounting that evaluates a company's ability to continue its operations for a foreseeable future. This concept is fundamental to how a company's assets and liabilities are valued on its Bilanz and presented in its financial statements. It is based on the assumption that the entity will continue in business for the foreseeable future, rather than being liquidated or significantly curtailing its operations.

⁶⁵The Fortführungsprognose is particularly vital for companies facing financial distress, as a negative prognosis can trigger significant legal and accounting consequences, including the potential obligation to file for insolvency. Ma⁶³, ⁶⁴nagement is required to make an assessment of the entity's ability to continue as a going concern, considering all available information about the future, typically for at least 12 months from the reporting period end.

#⁶¹, ⁶²# History and Origin

The concept of "going concern" as a fundamental principle in accounting has deep roots, ensuring that financial statements accurately reflect an entity's operational reality. In Germany, the principle is explicitly anchored in the Handelsgesetzbuch (HGB - German Commercial Code). Specifically, § 252 Abs. 1 Nr. 2 HGB stipulates that "in the valuation, the going concern assumption is to be applied, unless actual or legal circumstances preclude it."

Th⁵⁹, ⁶⁰is legal embedding underscores the importance of the Fortführungsprognose in German corporate law and Rechnungslegung. The Institute of Public Auditors in Germany (IDW) further concretizes these requirements through auditing standards such as IDW PS 270, which provides guidance for auditors on assessing a company's ability to continue as a going concern. Over⁵⁶, ⁵⁷, ⁵⁸ time, various legal reforms, such as the Financial Market Stabilization Act (Finanzmarktstabilisierungsgesetz - FMStG) in 2008 and more recently the Sanierungs- und Insolvenzrechtsfortentwicklungsgesetz (SanInsFoG) in 2021, have further refined the interplay between the Fortführungsprognose and insolvency law, adapting to changing economic realities and emphasizing the separation of numerical over-indebtedness from the overall going concern assessment.

K⁵⁴, ⁵⁵ey Takeaways

• The Fortführungsprognose is a forward-looking assessment of a company's ability to continue its operations.
• It⁵³ is a foundational principle in Accounting Standards, influencing the valuation of assets and liabilities.
• A ⁵²positive Fortführungsprognose indicates that the company is expected to meet its financial obligations for the foreseeable future, usually at least 12 months.
• A n⁵¹egative assessment can trigger the obligation to prepare financial statements on a liquidation basis and potentially file for insolvency.
• The⁴⁹, ⁵⁰ assessment involves both subjective judgment from management and objective financial analysis, often including detailed financial plans.

Int⁴⁸erpreting the Fortführungsprognose

Interpreting the Fortführungsprognose involves assessing whether a company can generate sufficient Cashflow and maintain Liquidität to meet its obligations as they fall due. This assessment goes beyond a simple look at past performance, requiring a forward-looking view that considers future prospects, potential risks, and available financing options.

A positiv⁴⁷e Fortführungsprognose signifies that, based on a reasonable and prudent business judgment, there are no actual or legal circumstances that contradict the continued existence of the company for the relevant period. This allows the company to continue valuing its assets at their going concern (fortgeführte Anschaffungskosten) rather than their liquidation values. Conversely, ⁴⁶if the assessment indicates significant doubts about the company's ability to continue, it implies that the going concern assumption is no longer appropriate. Such a scenario mandates a revaluation of assets and liabilities, typically at lower liquidation values, and may necessitate disclosures in the financial statements about the material uncertainties related to the company's continued operation. The determin⁴⁴, ⁴⁵ation of "overwhelming probability" for continued existence requires a comprehensive review of the company's financial position, Prognose of future developments, and the viability of any planned restructuring measures.

Hypothet⁴³ical Example

Consider "Alpha Tech GmbH," a software development company. For its annual financial statements, the management must prepare a Fortführungsprognose. In the previous year, Alpha Tech experienced a significant loss due to a failed product launch and increased competition. Several key employees also left, impacting its development capabilities.

To prepare the Fortführungsprognose, Alpha Tech's management takes the following steps:

1. Assess Current Situation: They analyze the Gewinn- und Verlustrechnung, current cash position, and the status of existing contracts. They note a substantial decline in revenue and ongoing operational expenses.
2. Develop a Recovery Plan: Management crafts a detailed plan including cost-cutting measures, a revised product roadmap, and strategies to secure new client contracts. They also identify potential new investors and explore options for debt Stundung with their bank.
3. Create Financial Forecasts: Based on the recovery plan, they prepare a detailed financial forecast for the next 12 to 24 months, projecting revenue, expenses, and cash flows. This involves conservative assumptions about market recovery and the success of their new initiatives.
4. Evaluate Solvency: They assess whether the projected cash flows are sufficient to meet upcoming Verbindlichkeiten, including loan repayments and supplier invoices.
5. Document and Conclude: After thorough analysis, even with challenges, management concludes that, with the successful implementation of their plan and anticipated new funding, there is an "overwhelming probability" that Alpha Tech can continue its operations for the foreseeable future. This positive Fortführungsprognose allows them to prepare their financial statements on a going concern basis. If this assessment were negative, they would need to prepare their statements based on liquidation values, signaling potential insolvency.

Practical Applications

The Fortführungsprognose is a cornerstone in several areas of corporate finance and compliance. Its primary application is in the preparation of annual financial statements, where it dictates the valuation methods used for a company's assets and liabilities. If a positive Fortführungsprognose can be made, assets are generally valued at their historical cost less depreciation, reflecting their continued use in operations. If not, they may ⁴²need to be valued at lower liquidation values.

Beyond financial⁴⁰, ⁴¹ reporting, the Fortführungsprognose is crucial in:

• Insolvency Law: For companies under German law (e.g., GmbHs), a negative Fortführungsprognose, particularly when combined with over-indebtedness or illiquidity, can trigger the statutory obligation for the Unternehmensführung to file for insolvency. This is a key distin³⁸, ³⁹ction between the commercial law perspective and the insolvency law perspective.
• Audit Engageme³⁷nts: External auditors, as part of their Wirtschaftsprüfung duties, critically review management's Fortführungsprognose. They evaluate the underlying assumptions and financial data to ensure that the going concern assumption is appropriate for the financial statements. Standards like IDW PS 270 provide guidelines for auditors in this regard.
• Lending and Fina³⁵, ³⁶ncing Decisions: Banks and other lenders often require a positive Fortführungsprognose before extending or renewing credit. It serves as a key indicator of a borrower's ability to repay its debts.
• [Risikomanagement³⁴](https://diversification.com/term/risikomanagement): Companies use the process of preparing a Fortführungsprognose to identify and evaluate potential financial and operational risks that could threaten their long-term viability. This proactive approach supports strategic planning and crisis management.
• Mergers & Acquisitions: In transactions, the Fortführungsprognose of the target company is vital for buyers and investors to assess the future earning potential and stability, significantly influencing the Unternehmensbewertung.

The rigorous demands placed on auditors regarding the Fortführungsprognose and going concern assessments have been underscored in high-profile cases, such as the Wirecard scandal, where auditors faced scrutiny over their judgments on the company's financial health. Financial Times article on auditor responsibility

Limitations and Criticisms

Despite its importance, the Fortführungsprognose has several limitations and faces criticism:

• Subjectivity: While based on objective financial data, the ultimate judgment of "overwhelming probability" for continued existence involves significant management discretion and subjective assumptions about future economic conditions, market trends, and the success of mitigation plans. This inherent subjectivity can be challenging to audit and may lead to overly optimistic assessments.
• Forward-Looking Uncer³³tainty: Forecasts, by their nature, are uncertain. Unforeseen events—such as economic crises, major market shifts, or sudden regulatory changes—can rapidly invalidate even well-reasoned Fortführungsprognosen. The COVID-19 pandemic, for instance, dramatically highlighted how quickly economic environments can change, impacting going concern assessments globally.
• Information Asymmetry: E³²xternal users of financial statements rely on management's assessment, which may not always capture all internal challenges or potential undisclosed risks. Auditors perform their due diligence, but they rely heavily on the information provided by the company.
• Limited Horizon: While the standard 12-month look-ahead period is practical, it may not be sufficient for businesses with long operating cycles or those in capital-intensive industries where viability depends on much longer-term projections.
• Impact on Eigenkapital: A negative Fortführungsprognose can lead to a revaluation of assets to liquidation values, potentially eroding Eigenkapital and leading to a situation of over-indebtedness, even if the company is not yet illiquid. This can trigger insolvency filing requirements, forcing viable businesses into liquidation prematurely.
• Pressure on Management: M³⁰anagement can face considerable pressure to present a positive Fortführungsprognose to avoid insolvency triggers or maintain access to financing, potentially leading to aggressive assumptions.

These limitations underscore the need for a cautious and transparent approach to preparing and interpreting the Fortführungsprognose, requiring robust internal controls and independent oversight.

Fortführungsprognose vs. Going Concern

While often used interchangeably in general financial discourse, "Fortführungsprognose" and "Going Concern" refer to closely related but distinct concepts, particularly within German accounting and insolvency law.

In essence, "Going Concern" is the ¹⁴, ¹⁵underlying accounting principle, a fundamental assumption that entities will continue to operate. The "Fortführungsprognose" is the specific and often legally mandated process of evaluating and confirming this assumption, particularly in the context of German law, when there are doubts about a company's ability to continue. It serves as the formal mechanism to justify or reject the Going Concern premise in a German financial context.

FAQs

What is the primary purpo¹², ¹³se of a Fortführungsprognose?

The primary purpose of a Fortführungsprognose is to assess and confirm a company's ability to continue its business operations for a foreseeable period, typically at least 12 months. This assessment is crucial for determining the appropriate valuation methods in financial statements and for identifying potential insolvency risks.

Who is responsible for preparing the¹⁰, ¹¹ Fortführungsprognose?

The management or legal representatives of a company are responsible for preparing the Fortführungsprognose. In complex or critical situations, external experts like auditors or financial advisors are often engaged to assist with the assessment and provide independent verification.

What happens if a company receives a n⁸, ⁹egative Fortführungsprognose?

A negative Fortführungsprognose indicates that there are significant doubts about the company's ability to continue operations. This can lead to a revaluation of assets and liabilities to their liquidation values, which are typically lower than going concern values, and may necessitate disclosures in the financial statements. More critically, under German law, a negative Fortführungsprognose can be a trigger for the legal obligation to file for insolvency if the company is also over-indebted or illiquid.

How long is the typical forecast period f⁷or a Fortführungsprognose?

The typical forecast period for a Fortführungsprognose is at least 12 months from the balance sheet date or the date the financial statements are authorized for issue. However, depending on the specific circumstances⁵, ⁶ and industry, a longer period may be considered to adequately assess the company's viability.

Is the Fortführungsprognose only relevant f³, ⁴or financially distressed companies?

While the Fortführungsprognose becomes particularly critical and explicitly required for companies facing financial difficulties or signs of crisis, the underlying "going concern" principle applies to all companies. For healthy companies with a history of profitability and ready access to financing, the Fortführungsprognose may be implicitly confirmed. However, any company, regardless of its current state, must consider the appropriateness of the going concern assumption when preparing its financial statements.¹, ²