Going Concern and Related Assessments
Dive into the implications of the AASB scrapping Special Purpose Financial Statements on auditing processes.
In the current economic climate, assessing the financial stability and going concern status of businesses has become a critical focus. The Australian Accounting Standards Board (AASB) and the Auditing and Assurance Standards Board (AUASB) have reissued their joint publication titled “Going Concern and Related Assessments” to address this concern. The publication now covers broader aspects of solvency and going concern, removing the specific focus on COVID-19.
The concept of going concern assumes that a business will continue its operations in the foreseeable future and can meet its financial obligations. It is a fundamental concept in financial reporting, guiding the preparation of financial statements based on the company’s ongoing existence.
The publication emphasizes the responsibilities of directors and management in assessing solvency and going concern, highlighting the need for diligence and professional judgment in evaluating the entity’s ability to continue as a going concern. This assessment involves reviewing the company’s financial position, cash flow projections, debt obligations, and potential risks.
For financial statement disclosures, if there are significant uncertainties related to going concern, management must provide appropriate disclosures in the financial statements, explaining the nature of the uncertainties and any management plans to mitigate risks.
Auditors play a critical role in the assessment of going concern, exercising professional scepticism and obtaining sufficient appropriate audit evidence. If they identify material uncertainties, they must consider the impact on their audit report, potentially including an emphasis of matter or explanatory paragraph to address these uncertainties.
The reissued publication acknowledges ongoing economic challenges beyond the immediate impacts of COVID-19 and aims to assist stakeholders in navigating the complexities associated with going concern assessments.
In conclusion, assessing solvency and going concern is vital for financial reporting in the current environment. The joint publication by AASB and AUASB offers comprehensive guidance to directors, management, and auditors, promoting transparent and accurate reporting to instil confidence among stakeholders and aid decision-making in challenging times. For further information, you can access the full document here.
