The presentation focused on two aspects around going concern assumptions.
The New Zealand External Reporting Board (XRB) has recently released new reporting requirements regarding going concern disclosures as the COVID-19 pandemic has shown again the diversity in practice over the information to be provided in circumstances when the financial statements are prepared on a going concern basis, but management are aware of events or conditions that may cast significant doubt on this judgement. The XRB came to the conclusion that it had to act fast in the context of COVID-19, in view of the fact that many New Zealand companies have a 31 March year-end, and as there was a perceived disconnect between the requirements in accounting and in auditing standards.
As New Zealand has adopted full IFRSs, the new requirements have to be followed in addition to the IFRS requirements. To the extent not already disclosed in accordance with IFRS requirements, where an entity prepares its financial statements on a going concern basis, and management is aware of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, it shall disclose information about the significant judgements and assumptions made as part of its assessment of whether the going concern assumption is appropriate. Furthermore, when management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, it shall disclose:
- (a) that there are one or more material uncertainties related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern;
- (b) information about the principal events or conditions giving rise to those material uncertainties;
- (c) information about management’s plans to mitigate the effect of those events or conditions; and
- (d) that, as a result of those material uncertainties, it may be unable to realise its assets and discharge its liabilities in the normal course of business.
The XRB representative noted that while New Zealand felt the need to act quickly, they would prefer the IASB undertook a project on going concern. This wish was seconded by other IFASS participants, also by representatives from jurisdictions where local standard-setting had been considered but not undertaken.
Another case for international standard-setting was then brought forward by the Australian Accounting Standards Board (AASB). The AASB representative argued that the current requirements where an entity is no longer a going concern (disclose the fact, adjust the basis of preparation, disclose why the entity is not a going concern) do not specify how the basis of preparation should be adjusted or what the revised basis should be. He noted that clear guidance is needed as there is a lack of comparability between companies where the going concern assumption is no longer appropriate and as some entities that are no longer a going concern continue to lodge financial statements stating compliance with IFRSs. He noted that preparers would benefit from there being clear guidance, users would have access to more comparable information, and auditors would have a clear basis of accounting to provide an opinion against.
Again, the suggestion to have a fundamental review of the requirements related to the going concern basis of accounting where the going concern assumption is no longer appropriate and disclosures and to carry out research to evaluate the need for standard-setting activity was supported by IFASS members.