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IAS 10 — Preparation of financial statements when an entity is no longer a going concern

Date recorded:

Background

The Committee received a submission asking firstly, whether an entity can prepare financial statements for prior periods on a going concern basis if it was a going concern in those periods and had not previously prepared financial statements for those periods; and secondly, if it had previously prepared financial statements for the preceding period on a going concern basis, whether it is required to restate comparative information in respect of the preceding period to reflect the basis of accounting used in preparing the current period's financial statements.

Staff analysis

Regarding the first question, the entity cannot prepare any financial statements for prior periods on a going concern basis applying IAS 1:25 and IAS 10:14. The staff considered the term "reporting period" in IAS 10:14 is not just referring to the last period's financial statements but all preceding periods' financial statements.

The staff performed research of publicly-listed IFRS reporters that prepare financial statements on a non-going concern basis in response to the second question. They did not identify any entity restating comparative information to reflect the non-going concern basis. The staff noted that IFRS Standards are silent in this regard. However, in view of the lack of diversity in practice and the fact that the submission describes the question as a hypothetical one, without providing evidence that the matter is widespread, standard-setting in respect of this question is not recommended.

Staff recommendation

Based on the above analysis, the staff recommended that the Committee not add the matter to its standard-setting agenda.

Discussion

Most of the Committee members agreed with the staff analysis for Question 1. For Question 2, a number of Committee members did not agree that the existing Standard is unclear about the issue.

Only one Committee member disagreed with the analysis in the agenda decision. He considered that the circumstances described in the submission are rare and non-preparation of financial statements for the preceding financial years is not proper. An agenda decision should not answer a question related to an improper situation.

The Committee members generally agreed with the conclusion that all of the three years’ financial statements described could not be prepared on a going concern basis based on IAS 1 if the entity decided to liquidate it. Some Committee members also raised the question of how an entity should prepare financial statements on a non-going concern basis. The staff responded that the agenda decision is focused on answering if the financial statements could be prepared on a going concern but does not intend to analyse the accounting under a non-going concern basis because it is beyond the question and may go into serious debate. For Question 2, some Committee members considered IAS 8 could give the answer. Specifically, IAS 8:38 mentioned the change in accounting estimate due to changes in condition should be applied prospectively and IAS 8:16 described circumstances in which they are not considered as changes in accounting policies and therefore do not require retrospective application. However, the staff responded that given the question is not widespread, they did not want to add the relevant analysis to the agenda decision.

The Committee decided, by a vote of majority of 13:1, not to add the matter to its standard-setting agenda and made some edits to the agenda decision to improve it.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.