Going concern—a focus on disclosure | January 2021 | 1
January 2021
Going concern—a focus on disclosure
A fundamental decision management has to
make in preparing financial statements applying
IFRSStandards is whether to prepare them on a going
concern basis. In the current stressed economic
environment arising from the covid-19 pandemic,
many entities have seen a significant downturn in
their revenue, profitability and hence liquidity which
may raise questions about their ability to continue as
a going concern. For such entities deciding whether
financial statements are required to be prepared on a
going concern basis may therefore involve a greater
degree of judgement than is usual.
Most stakeholders are familiar with the specific
discussion of going concern and related requirements
in IAS 1 Presentation of Financial Statements to disclose
material uncertainties relating to an entity’s ability
to continue as a going concern. However, questions
raised about going concern in recent months have
highlighted the relevance of other ‘overarching’
disclosure requirements in IAS 1 that interact with
the specific going concern requirements. Considering
this interaction is an important step in identifying
material disclosures required by IFRS Standards;
those disclosures are likely to be relevant for users of
financial statements. One aspect of this interaction
was highlighted in a 2014 Agenda Decision published
by the IFRS Interpretations Committee. This document
not only recaps the content of that agenda decision
but also highlights other possible interactions that
might be relevant.
Assessing going concern
When preparing financial statements, whether annual
or interim, IAS 1 requires management to assess the
entity’s ability to continue as a going concern. The
Standard defines going concern by explaining that
financial statements are prepared on a going concern
basis unless management either intends to liquidate
the entity or to cease trading, or has no realistic
alternative but to do so.
This document is intended to support the consistent application of requirements in IFRS® Standards
Paragraph 26 of IAS 1 states that factors that
management may need to consider when assessing
whether the going concern basis of preparation
is appropriate are those factors that relate to the
entity’s current and expected profitability, the timing
of repayment of existing financing facilities and
potential sources of replacement financing. In the
current stressed economic environment, an entity
may be affected by a wider range of factors than in
the past. IAS 1 requires management to take into
account all available information about the future.
Therefore, management may need to consider this
wider range of factors before it can conclude whether
preparing financial statements on a going concern
basis is appropriate. For instance, among the factors
management may need to consider are the effects
of any temporary shut-down or curtailment of the
entity’s activities, possible restrictions on activities
that might be imposed by governments in the future,
the continuing availability of any government support
and the effects of longer-term structural changes in
the market (such as changes in customer behaviour).
When assessing whether to prepare financial
statements on a going concern basis, IAS 1 requires
management to look out at least 12 months from the
end of the reporting period—but emphasises that the
outlook is not limited to 12 months. Some national
regulations require consideration of going concern
for 12 months from the date that financial statements
are authorised for issue. Considering time periods
longer than 12 months is not inconsistent with the
requirements in IAS 1, which establishes a minimum
period, not a cap.
