Going concern: Business as unusual

Looking at least 12 months ahead to assess and establish whether an entity remains a “going concern” is a routine exercise conducted as part of preparing annual financial statements. Any entity that prepares financial statements in compliance with International Financial Reporting Standards (IFRS) or Australian Accounting Standards (AAS) is required to undertake this assessment to ensure the financial statements are prepared on a going concern basis.

The forward-looking assessment, which can pose challenges even during normal times, is likely to be significantly more difficult in many industry sectors due to the economic uncertainties arising out of COVID-19. The going concern assessment is primarily the responsibility of the preparers of financial statements, although the assessment and conclusions must also stand up to scrutiny by auditors.

For a historically profitable entity with sufficient liquidity and ready access to finance if needed, the going concern assessment will require minimal effort during normal times.

The Australian Accounting Standards Board (AASB) is developing guidance on applying the going concern concept against the COVID-19 backdrop. They are also considering guidance on the accounting principles that could be followed when the going concern basis does not apply.

To view the CPA Australia article in full, click here

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