Britain's Auditing Practices Board has published guidance to help directors decide whether their business remains a going concern, given the tough economic climate.
The Board, which is part of the Financial Reporting Council, said uncertainty about bank lending intentions, the effect of recession on the company’s business, and the extent to which customers and suppliers might be suffering, caused problems for directors about to approve year-end financial results.
Under International Financial Reporting Standards, directors have to assess a company’s ability to continue as a going concern when preparing financial statements, and disclose any uncertainties they are aware of when making their assessment. The Board’s guidance also includes help for auditors, who have to decide whether the directors’ opinion is reasonable.
The Association of Chartered Certified Accountants welcomed the guidance. Sara Harvey, chairman of its auditing committee, said: “The issue of whether an organization can be seen as a going concern is highly sensitive and significant to shareholders, potential investors, and other stakeholders who are becoming more risk averse in the current economic climate.”
Harvey added that with U.S. regulators already advising auditors there to be more skeptical about the going concern issue and the potential implications that could have, “it is clearly important to have certainty for both sides when they come to making or judging the same issue in the UK.”
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