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IAS 1 — Assessment of going concern (IASB only)

Date recorded:

The Committee previously considered a request for clarification on the disclosure requirements about the assessment of going concern in IAS 1. This standard requires that when management is aware of material uncertainties about an entity’s ability to continue as a going concern, those uncertainties shall be disclosed. The scope of the Committee’s discussions were limited to two specific elements – when an entity should be required to disclose information about material uncertainties and what to disclose about the uncertainties.

The Committee tentatively decided that these two questions should be addressed through a narrow-scope amendment to IAS 1.

At the Committee’s direction, the staff prepared proposed amendments to IAS 1 which:

  1. retained, substantially unchanged, the guidance relating to going concern as a basis for the preparation of the financial statements;
  2. provided guidance on how to identify material uncertainties, and
  3. contained requirements about what to disclose about material uncertainties (including objectives for the disclosure and defining more clearly the threshold for disclosure).

The Committee also decided to propose that a question be included in the exposure draft about whether the proposed amendments should include the alignment of the going concern assessment time frame in IAS 1 with the time frame set out in many local auditing requirements (e.g., whether to align the quoted going concern assessment timeframe in IAS 1 (at least twelve months from the end of the reporting period) with that of International Standard on Auditing (ISA) 570 Going Concern (at least twelve months from the date of the financial statements).

The Committee, at its meeting, recommended that the proposed amendments be presented to the IASB for its consideration.

Disclosure requirements for an assessment of going concern

The staff asked the Board whether it agreed with the Committee’s recommendation to propose an amendment to IAS 1 related to disclosure about material uncertainties related to an entity’s ability to continue as a going concern and the current wording of the proposals (as outlined in the staff paper).

Board members expressed a number of concerns with the proposals.

Some of those concerns were fundamental disagreements with the need for an amendment. Specifically, one Board member believed current requirements were clear. He saw the proposed requirements as introducing disclosure overload and encroaching auditor and regulator responsibility.

Other Board members expressed significant drafting concerns. In particular:

  • Several Board members believed the amendments resulted in a lack of clarity as to when disclosures about material uncertainties are required. They saw the proposals (particularly those included in paragraph 25C of the draft proposals) as introducing a disclosure requirement associated with general business risk as opposed to going concern risk.
  • Multiple Board members suggested that disclosure requirements in paragraphs 122 and 123 of IAS 1 should be closely linked to the proposals so as to provide indicative guidance as to the judgements to consider when determining if material uncertainties about an entity’s ability to continue as a going concern should be disclosed.
  • One Board member questioned the practicality of the disclosures, particularly as it relates to forward looking information. He noted the requirement to disclosure information that enables users of financial statements to understand the effect of any significant future transactions that may be taken by management to ensure the entity continues as a going concern was too broad (as the scope of all possible actions management could take would be endless).

Hearing the broad concerns over drafting, the Committee Chair, who attended the meeting, suggested that volunteering Board members could act as advisers to assist the staff/Committee in further developing the wording of the proposals. A few Board members agreed to act as advisers. The staff intend to bring back revised proposals to a future meeting.

Time frame for an assessment of going concern

The staff had prepared a staff paper to outline discussions by the Committee regarding the time period that should be covered by the going concern assessment required by IAS 1.

Given Board deliberations and next steps following the Board’s discussion of disclosure requirements for an assessment of going concern, the Board decided not to discuss this paper. The Board may revisit this topic at a future meeting.

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