IAS 1 — Disclosures requirements about assessment of going concern

Date recorded:

In June 2012, the Committee received a request for clarification about IAS 1, particularly with regard to when financial statements should be prepared on a going concern basis. It also requires that when management are aware of material uncertainties about the entity’s ability to continue as a going concern, those uncertainties shall be disclosed. The submitter, the International Audit and Assurance Standards Board (IAASB), thinks that the guidance about the disclosure of these uncertainties is not clear.

The staff requested the Committee to support their recommendation that (a) other matters raised on this topic are too broad to be addressed by the interpretations Committee and (b) that the staff limit their discussions to two areas about the disclosure of material uncertainties about the going concern assessment—(i) when those uncertainties should be disclosed and (ii) what should be disclosed about those uncertainties.

The Committee agreed with the staff’s recommendations that the matters raised were far too big for an annual improvement and made the comment that the “when” aspect is of great importance when undertaking their discussions for further analysis.

In this regard, the staff further discussed when these uncertainties should be disclosed and noted that the threshold in IAS1 for not preparing the financial statements on a going concern basis is a high one since management’s intention to cease trading or liquidate or no realistic alternative but to do so—and that threshold is accepted as appropriate by preparers and users of financial statements.

For this reason, the staff paper concluded that that any anticipated changes to IAS 1.25, made in order to clarify when material uncertainties should be disclosed, should leave unchanged the guidance about assessing going concern as an appropriate basis for preparing financial statements.

The Committee were asked to what extent they agree with the staff proposed revisions to IAS 1 as set out in paragraph 49-50 and requested to formulate any revisions where necessary.

The Committee proceeded to discuss the nature of the proposed revisions and following a comprehensive discussion agreed that it was clear that the threshold for disclosure should be lower that the threshold for preparation and that any amendments would therefore increase the frequency of the disclosures.

Several members of the Committee argued that the proposed amendments didn’t make this distinction and had the potential to confuse preparers and users of financial statements. The Chair proceeded to summarise the options following the Committee’s discussion in that, the addition was positive, however the language as drafted doesn’t achieve the aim of the staff paper. The Chair suggested a team of 3 Committee members assist in drafting which was accepted and to deliberate further the revised drafting during the next Committee meeting.

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