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Will your business survive? How to make this judgement and let readers of your financial statements know what you considered in making this judgement
Time to read: 3 mins
Until now (i.e. 2020, the year COVID-19 changed our lives and created our "new normal"), determining whether your business was a "going concern" and whether it was appropriate to prepare the financial statements on the going concern basis, was pretty straightforward. It has not traditionally been something directors or accountants have really had to think too deeply about.
However, now we are in a situation where a significant number of entities have been impacted by the economic downturn arising from COVID-19. As such, the going concern consideration and corresponding financial statement disclosures should be an area of focus for us all.
The NZ Accounting Standards Board has recently issued amendments (FRS 44 amendments for For-Profit entities) and (PBE IPSAS 1 amendments for Public Benefit Entities) to make it clearer what is required to be disclosed in relation to going concern. The existing standards already require disclosure of significant judgements and estimates however more specific requirements were needed to encourage those preparing financial statements to let readers know more about what was considered in determining whether the entity was, in their view, able to continue for another 12 months.
The intention of the changes was to provide readers with more relevant and transparent information about situations where an entity's ability to continue to operate is uncertain or where significant judgement is applied. Given the uncertainty surrounding us at the moment this information can be quite useful.
The amendments take effect for periods ending on or after 30 September 2020 (i.e. now).
If you find yourself grappling with an entity that may, or may not, be able to survive the economic impact of COVID-19 and you would like a fresh set of eyes to review what is currently being disclosed please get in touch with your Baker Tilly Staples Rodway adviser.
This article is written by Nicola Hankinson, our National Technical Manager. Nicola is a passionate Chartered Accountant and enjoys helping clients to prepare financial reports that meet requirements, but also help them to articulate their 'performance story' and describe how their business has been creating value in the short, medium and long-term.
DISCLAIMER No liability is assumed by Baker Tilly Staples Rodway for any losses suffered by any person relying directly or indirectly upon any article within this website. It is recommended that you consult your advisor before acting on this information.