IAS 1 – Disclosures about going concern

Date recorded:

This paper provides the Interpretations Committee with a draft of a tentative agenda decision to bring this issue to a close.

The Director of Implementation Activities asked the Committee members if they agreed with the staff recommendation to bring closure to this topic by issuing an agenda decision, and whether they agreed with the proposed wording of the tentative agenda decision.

A Committee member noted that he agreed with the staff recommendation, adding that the tentative agenda decision was useful because it pointed to existing guidance in the standards on this topic. He noted that the direction the IAASB was going in terms of auditor reporting would likely require the auditor to discuss in the auditor’s report significant judgement areas, and it would not be good for an auditor to report on something that was not in the financial statements. Accordingly, he noted that to have something like this that provided guidance on disclosure in the financial statements was very helpful. He further noted that the reference in the tentative agenda decision to gross vs. net approach could be confusing in practice, and suggested not including this language in the final agenda decision.

Another Committee member noted that he agreed with the comments expressed by the previous Committee member, noting that it was extremely helpful to point to existing guidance that required disclosure when management has made a significant judgement, and also expressing concern regarding inclusion of the gross vs. net approach being confusing. He also commented on the last sentence of the second paragraph, which listed a range of concerns the Board had about disclosures, noting that it could be read as the Board saying the disclosures should not be made, whereas the Committee was saying that the disclosures should be made, so he noted that it might be helpful to omit this sentence.

Another Committee member noted that the tentative agenda decision is better than nothing, adding that the agenda decision should reflect the fact that the Board was responsible for the Committee taking this issue no further.

Another Committee member agreed with the previous Committee member’s comments. He also questioned whether paragraph 122 of IAS 1 is any clearer than paragraph 25 with respect to the disclosures that were required when there was a close call. He noted that it was not clear what the trigger for disclosures under paragraph 122 was, and added that it was also not clear that disclosures required by paragraph 122 actually apply to judgements in relation to disclosures because the paragraph relates to amounts recognised in the financial statements. He further noted that, while the agenda decision was useful, he did not believe it would reduce diversity in practice, which was the issue that first came to the Committee on this topic, adding that a better solution would have been an amendment to IAS 1.

Another Committee member agreed that paragraph 122 appeared to be referring to items recorded in the financial statements and noted that she looked at the issue from the perspective of ‘is liquidity recorded in the financial statements’ and questioned whether one would really apply that paragraph to an assessment of the overall liquidity of an organisation.

Another member questioned whether there was a need for paragraphs 2 and 3 in the tentative agenda decision, noting that the historical information was not the basis for the decision. He also noted that other agenda decisions do not make reference to historical information.

The Chairman noted that the paper was brought to the Committee to bring closure to the issue, and asked the Committee members if they wanted closure on this issue, and whether they believed that this was better than doing nothing.

All Committee members agreed that they wanted closure on this issue, and agreed with the staff recommendation to close this topic by issuing an agenda decision.

There was discussion on the need for the historical information in the agenda decision, and concerns expressed about such information introducing ambiguity.

The Committee members voted to issue the tentative agenda decision, subject to wording amendments.

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