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IAS 1 — Disclosure requirements about an assessment of going concern

Date recorded:

The Committee received a submission requesting clarification about the disclosures required in relation to material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern.  The Committee proposed that the IASB should make a narrow-scope amendment to change the disclosure requirements in IAS 1 'Presentation of Financial Statements' in response to this issue; however, the IASB decided not to proceed with these amendments.

A tentative agenda decision was subsequently published by the Committee in March 2014, which highlighted the fact that the judgements required in arriving at a going concern conclusion in circumstances where there had been a ‘close call’ were an example of the application of paragraph 122 of IAS 1.

The purpose of this paper was to provide feedback on the comment letters received on the tentative agenda decision, and to ask the Committee members if they agreed with the revised agenda decision.

The Project Manager introduced the paper and asked the Committee members whether they had any comments on the paper and whether they agreed with the staff recommendations in the paper.

A Committee member commented on the reference to paragraph 122 of IAS 1 in the final paragraph of the agenda decision.  He believed it was very clear in the context that the reference made to paragraph 122 was around the judgement as to whether or not to provide a disclosure, not around the judgement whether or not to adopt a going concern basis of preparation.  He noted that some of the comment letters received on the tentative agenda decision noted that paragraph 122 did not actually apply to a judgement about whether or not to provide a disclosure.  He acknowledged that the paragraph could be read this way; however, the spirit of the paragraph was that the most important judgements should be disclosed which could include the going concern determination, and that the reference to paragraph 122 was helpful in this context.

Another Committee member noted that when the Committee had previously discussed the issue, it had been acknowledged that, when read literally, it could be argued that paragraph 122 of IAS 1 did not apply in this context.  He noted, however, that it was the principle behind paragraph 122 that was seen as being the hook to provide disclosure about significant judgements that management had made where circumstances existed that suggested that the entity may not be a going concern, but when management looked at the circumstances, concluded on balance that the entity was a going concern (and accordingly, disclosures required by paragraph 25 of IAS 1 need not be made).  He noted that the Committee believed this judgement was significant enough to warrant some disclosure, and accordingly, that he agreed with the proposed agenda decision.

Another Committee member cautioned that the agenda decision was being read by some as setting a precedent that an entity was required to disclose every time a significant judgement was made in coming to the conclusion that a disclosure, of any sort, was not necessary.

Another Committee member drew the Committee’s attention to the point raised in a comment letter that had also been discussed previously by the Committee, that there was a different hurdle required for management to conclude that the going concern basis for the preparation of the financial statements was appropriate to the hurdle about whether disclosures about material uncertainties in relation to going concern were required, and observed that this point did not appear in the agenda decision.  He added that he believed it would be helpful for the Committee to clarify that the hurdles are not the same, and that the threshold for disclosing material uncertainties was reached before the threshold for not being a going concern.  He further noted that the agenda decision stated that the IASB removed this topic from its agenda, but that it was not clear why the Committee removed it from its agenda, and suggested that the words “consequently, the Committee has removed the item from its agenda” should be added at the end of the paragraph.

Another Committee member noted that he felt that the concern the Committee had was that in the absence of any guidance with respect to what was required to be disclosed except in a situation where a material uncertainty existed, the trend had been for there to be no disclosures and that the Committee was trying to clarify that, in a situation where a significant judgement had been made that there was no material uncertainty, this should be disclosed.  He acknowledged that paragraph 122 was perhaps not necessarily the best solution, but noted that he would be uncomfortable with the Committee taking a step back from trying to clarify that some disclosures should be given.   He noted that, accordingly, he agreed with the revised agenda decision.

Upon being called to a vote by the Chairman, ten of the Committee members present agreed with the staff recommendations in the paper, and with the proposal to add the wording “consequently, the Committee has removed the item from its agenda” to the agenda decision.

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