ICAI Publishes Going Concern Considerations

by Robert Lee, Tax-News.com, London

06 March 2009

The Institute of Chartered Accountants in Ireland (ICAI) has today published an information booklet on ‘Going Concern’ considerations in the current economic environment.

The document aims to highlight to company directors, members of audit committees, auditors and other stakeholders the importance of going concern disclosures in financial statements against the backdrop of the current economic uncertainty. The booklet brings together guidance prepared by various commentators on this issue in addition to ICAI thinking. The document also emphasises the importance of the processes and procedures directors must bring to bear as part of their decision making.

Going concern is a long standing concept in Irish and UK financial reporting. In preparing the financial statements on a going concern basis, the directors of a company are making the presumption that the company will continue in operational existence for the foreseeable future. While the going concern considerations are of relevance to directors of all corporates, there are additional disclosure issues associated with public interest or listed companies.

Each year company directors have to satisfy themselves that it is appropriate to prepare their annual financial statements on a going concern basis. However, in the current economic climate directors will have to consider the quality and quantity of evidence that informs their decision and the degree of disclosure necessary to inform stakeholders of uncertainties identified in the assessment. These uncertainties can include the banking and financing issues facing a company in addition to the impact of the recession on companies and their customers and suppliers.

The ICAI publication addresses these going concern issues from a number of different perspectives – those of company directors, audit committees and general stakeholers/users of financial statements.

Commenting ICAI’s Director of Technical Policy, Aidan Lambe, said:

“The purpose of this publication is to highlight and inform preparers, auditors and users of issues that may affect the preparation of audited financial statements in the current economic environment. It is important that stakeholders understand these issues so that they can be responded to rationally and proportionately. Particularly, additional disclosures in a company’s accounts are not necessarily indicative of the existence of a significant doubt on an entity’s ability to continue as a going concern. Rather they are present to inform external stakeholders how directors and auditors have arrived at their determination. An objective of the disclosures may be to explain why the going concern issues that affect the entity do not give rise to significant doubt.”

Recommended