 Hello, and welcome to the session. This is Professor Farhad, and this session we would look at the going concern concept illustrated by the Norwegian cruise line. The going concern concept is a challenging topic for students in which they don't really understand how does it work. So in this session, I would look at the Norwegian airline as a real-life example, real-time or real-life example. This topic is covered in intermediate accounting, the CPA exam, the FAR section. As always, I would like to remind you to connect with me on LinkedIn. If you haven't done so, YouTube is where you would need to subscribe. I have 1,700 plus accounting, auditing, finance, tax, and Excel lectures. If you like my lectures, please like them, share them, put them in playlists. If they benefit you, it means they might benefit other people. Connect with me on Instagram. On my website, farhadlectures.com, you will find additional resources to supplement your accounting education, and especially your CPA exam. If you are looking for those 10 to 15 extra points, CMA exam, EA exam, as well as other accounting courses. So today is May 5th, 15 minutes ago, approximately 8.43C. NBC reported that the Norwegian cruise line says there's a substantial doubt about its ability to continue as a going concern and warns of a possible bankruptcy. So this is the company talking. Now, why did that happen to the cruise airline? Let's look at the factors. Well, here are the factors that we take into account before we decide we are a going concern. Well, there are qualitative and quantitative factors. Liquidity position, cash position, funding to operate the business, debt due the next 12 months, and ability to pay, industry condition, competition, negative financial trends. So those are some of the factors. Let's see how many of these factors applies to the Norwegian airlines because this is what you need to know on your exam. This is what you need to know on your CPA exam or on your college level exam. So let's take a look at the real case and look at the Norwegian airline and see how many of those the Norwegian airline meets. Okay? First, let's look at the industry overall. The coronavirus outbreak. So this is basically industry information. There's nothing that they can do. It's the coronavirus, there's a pandemic going on, people are traveling, people are traveling less. Well, there's a desire of people not to travel. And this is expected to impact our results, operation, outlocks, plans, goals, growth, and cash flow liquidity demand for voyage and share price. So this is the reason, industry problem overall. It's not only specific to us. These factors taken all together have raised substantial doubt about the company to continue as a going concern. Now they're gonna talk about their debt. They said as of today, they are in compliance with all of their debt agreement as of March 31st, which is the end of the quarter. But here's the problem, but could not guarantee that going forward and may need to seek waivers from its lender. So we're okay as of March 31st. But look, we're gonna tell you the truth. We have no revenue coming, coming people are not traveling. Going forward, we might have to violate our debt agreement unless someone comes and gives us money. And who's gonna give them money? I don't know, maybe someone has given them money now but who knows how long they're gonna give it. If it cannot amend its credit agreement, so simply put, if we cannot work with our creditors to maybe give us more time to pay, the company said it's at risk of default. So notice the company will have to come out and say, why are they a going concern? Which would trigger immediately payment of most of the debt and derivatives contract. And the problem is, if they don't work with them and if they are in violation of their debt agreement, they have to pay everything all at once and to comply with their derivatives, which is we don't know what the derivatives agreement is. They could be very serious consequences and simply put, they're being frank. That could push us into a bankruptcy. So notice, if it's not able to amend its debt agreement or obtain new financing, so maybe someone will come and they would say, you know what, maybe in two years this business will come back, I should invest. Or maybe no one's gonna show up. Our business and financial condition could be adversely affected and it may be necessary for us to reorganize our company in its entirety. Simply put, go through a bankruptcy procedures. So here's what's happening specifically. The company also announced, it expected to report a loss for the quarter ended March 31st and on the year. So they don't expect to have any profit, which is obviously separately. So someone is kind of interested in them. The company announced that L. K. Todrin, a private equity fund invested 400 million in one of their subsidiaries. So someone is looking at them. The share of the company fell more than 10% in the pre-market trading today when they make this announcement. So simply put, the coronavirus pandemic has brought the global travel industry and the cruise industry to extend still across the world and they don't have the money to keep on going. That's simply what's going on. So this is a classic example of a going concern. This is a classic example. So the company will have to announce that going concern. They cannot hide it. They have to tell the public, we are having problems. If someone is interested in buying us, let's do it. Otherwise, we're gonna be in trouble. But they also, if you notice, they said, if we can refinance, or if the lenders work with us, we can get out of this problem. Now the problem with the Norwegian airline, it's not the US company. So even if the US government decided to bail them out, they cannot bail the Norwegian cruise because I don't believe they are a US company. So they're in bigger trouble because of that. Anyhow, I hope this recording help illustrate the concept of the going concern. Cause that's a topic that gives students many problems. Like what is a going concern? We're here's a going concern for you. As always, please like this recording, share it, put it in playlist, visit my website for additional recording and resources to be able to pass your CPA exam. Put that exam behind you, focus on your career and stay safe, especially during those coronavirus.