Firms are rightly concerned about signing off assignments where coronavirus could have a serious effect on the ongoing activities of an organisation.
All of the main accounting bodies have issued guidance on the current situation and implications for auditors and organisations. The guidance is all pretty uniform in saying that going concern is to be assessed in this situation as it would be under any other circumstances. Remember that organisations cease to be going concerns if management intends to liquidate or cease trading or has no realistic alternative to do so.
This means there are key questions to consider:
- Have the accounts been prepared on the going concern basis?
- Is this the appropriate basis?
- Do the disclosures in the accounts support the going concern assertion?
- If there are material uncertainties, have these been disclosed adequately?
When considering their going concern status, organisations should think about their own financial resilience but also have regard to the government packages announced, bank policies and any other support which may be available.
For some organisations, there may now be a material uncertainty as to their going concern status. If this is the case, the message should be transparency and to disclose the risks and uncertainties that the business is facing along with any steps it is taking to mitigate those risks.
For a lot of organisations these matters will be non-adjusting post balance sheet events as the virus and its impact were not known at their period end. For those clients with 31 March 2020 year ends onwards, there could be adjustments to be made to balances.
All organisations will be in different situations so the use of ‘standard wording’ should be avoided. Bespoke disclosures to fit the individual organisation circumstances are the order of the day. Some will be more resilient than others. Indeed, some organisations could well be thriving in the current environment.
As always, it is a case-by-case basis and each organisation need to make its own assessment.
The auditor’s responsibility remains to gather sufficient appropriate audit evidence and then conclude on the whether the going concern basis is appropriate or where there is a material uncertainty, that this has been adequately disclosed.
Where a material uncertainty has been disclosed and the auditor is satisfied that the disclosure is adequate, a material uncertainty section replaces the going concern section of the audit report.
If the organisation is not willing to include a material uncertainty disclosure where the auditor feels one is required, the auditor will need to consider issuing a modified opinion.
The FRC has been clear that auditors should not just generically report on material uncertainties or include a statement as a matter of course.
As this is a fast moving and unpredictable situation, you may feel that delaying sign-off is appropriate until there is more clarity. This may be a wise move but there may be filing deadlines looming and at the time of writing, none of the registrars have said that deadlines will be extended automatically. Companies House have however confirmed that where a company needs an extension due to COVID-19, while they must apply for it, it will be automatically granted and applied. The Charities Commission have also said that where there are issues meeting deadlines, extensions can be granted if Charities call their contact centre.
As this is a fast-moving situation, check the relevant registrar’s website for their latest guidance on filing.
Links to published guidance: