4 February 2021: The IFRS Foundation has published a document designed to help preparers of IFRS accounts through the intricacies of applying going concern requirements, in response to the current volatile economic conditions.

The move comes as the business uncertainty caused by the pandemic combined with the disruption due to Brexit ramps up the focus on the viability of businesses and adds a layer of complexity surrounding going concern assessments for companies with late 2020 and early 2021 year-ends. 

Stakeholders are increasingly concerned about the impact of reduced revenue, profitability and liquidity due to COVID-19 and this has increased the importance of going concern assessments and related disclosures, the document warns. 

Marianne Mau, Technical Lead in ICAEW’s Financial Reporting Faculty, said: “Going concern is right at the top of the agenda for a lot of preparers of accounts, auditors and users of accounts because of the challenging circumstances in which we find ourselves. The first question people will ask is ‘will this business still be around in 12 months’ time?’”

The volatility of trading conditions has unsurprisingly ramped up the work involved in going concern assessments, Mau added. “Everything will require more evidence, more thought-processes and more work.” The education document serves as a reminder as to what is expected of accounts preparers and reinforces some key messages about timescales, the work involved and how important the disclosure is, Mau added.

The requirements in IAS 1 can be depicted as set out in the diagram on page 2 of this education document labelled ‘Applying the requirements in IAS 1’.

FRC review

In November a review of completed audits by the Financial Reporting Council (FRC) found that audit firms have implemented additional measures to enhance their evaluation of companies’ going concern assessments since the start of the Covid-19 pandemic. The review found that the additional policies and procedures introduced earlier in the year had been substantially applied in practice.

“People are feeling really challenged and there is so much focus on going concern, so some handholding is useful,” Mau said. However, she warned that the document didn’t necessarily make the application of going concern any easier. “You still have to make all those judgements and craft the disclosure, and that’s likely to be challenging for many.”

• Read the IFRS Foundation’s education document in full at going-concern-jan2021.pdf (ifrs.org)
• ICAEW’s Global Recovery Hub provides a wealth of in-depth information and guidance on going concern https://www.icaew.com/insights/covid-19-global-recovery/covid-19-going-concern