IAS 1 explicitly states that at each reporting date, management is required to assess the entity’s ability to continue as a going concern and consider all available information about the future, which is at least, but is not limited to, twelve months from the annual reporting date. As a result, all events that occur during an entity’s subsequent events period should be considered when evaluating whether there is significant doubt about the entity’s ability to continue as a going concern.
In other words, even if events during the subsequent events period are not considered adjusting subsequent events, they should still be incorporated into the going concern assessment. Furthermore, events or conditions that cast significant doubt on an entity’s ability to continue as a going concern should be disclosed if there are material uncertainties or if a significant amount of judgment is involved in reaching the conclusion about whether the going concern assumption is appropriate. IFRIC agenda decisions from July 2010 and July 2014 should be taken into consideration here.
We recommend caution when considering the relevant period of assessment for going concern. There has been modification to the auditing standards at a local level for some jurisdictions. These include Australia, New Zealand, and the UK. They stipulate the auditor must ensure that management has considered a period of no less than 12 months from the date of approval of the financial statements.
Auditing disclosure requirements for going concern
When applying IFRS, an auditor is required to consider the adequacy of disclosures in relation to management’s assessment of going concern. Auditing standard ISA 570 ‘Going Concern’ sets out specific disclosure expectations where there are events or conditions that may cast doubt on the entity’s ability to continue as a going concern including:
- the principal events or conditions that may cast doubt on the entities ability to continue as a going concern
- management’s plan for dealing with such events or conditions
- that there is a material uncertainty related to events and conditions that may cast significant doubt on the entity’s ability to continue as a going concern (if applicable)
- where there is a material uncertainty identified, that the entity may be unable to realise its assets and discharge its liabilities in the normal course of business.
Conflict between accounting and auditing standards
Although preparers are not required to comply with auditing standards, in order for an auditor to meet the requirements of ISA 570 they are required to assess whether the disclosures in the financial statements in relation to going concern are adequate based on the requirements and guidance in the auditing standards.
Whilst the auditing standards are specific in required disclosures where there are events or conditions that may cast doubt on the entity’s ability to continue as a going concern, the accounting standards are not specific. There is therefore judgement involved in how an auditor concludes that the disclosures in relation to going concern are adequate, particularly when the assessment involves significant judgement or material uncertainties. We therefore recommend engaging with the auditor soon after commencement of the audit.
