IFRS Accounting Considerations of the COVID-19 Related to Going Concern
IAS 1 Presentation of Financial Statements requires management, when preparing financial statements, to assess an entity’s ability to continue as a going concern and whether the going concern assumption is appropriate. Furthermore, disclosures are required when the going concern basis is not used or when management is aware, in making their 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. Disclosure of significant judgment is also required when assessing the existence of a material uncertainty is a significant judgment. In assessing whether the going concern assumption is appropriate, the standard requires that all available information about the future, which is at least, but not limited to, twelve months from the end of the reporting period, should be considered. This assessment needs to be performed up to the date on which the financial statements are issued.
Management must assess the entity’s ability to continue as a going concern. When making that assessment, where relevant, management considers the existing and anticipated effects of the pandemic on the entity’s activities in its assessment of the appropriateness of the use of the going concern basis. For example, when an entity has a history of profitable operations and relies on external financing resources, but because of the pandemic, its operations have been suspended before or after the reporting date, management would need to consider a wide range of factors relating to the current adverse situation including, expected impact on liquidity and profitability before it can satisfy itself that the going concern basis is appropriate. Management should consider all available information about the future obtained after the reporting date, including measures taken by governments and banks to provide relief to affected entities in their assessment of going concerns.
Given the unpredictability of the pandemic’s potential impact, material uncertainties may cast significant doubt on the entity’s ability to operate on a going-concern basis. When the entity prepares the financial statements, it is required to disclose these material uncertainties in the financial statements to clarify to readers that the going-concern assumption used by management is subject to such material uncertainties.
- Google Image. (2022).
- Deloitte. (2022). IAS 1 — Presentation of Financial Statements. https://www.iasplus.com/en/standards/ias/ias1
- Ernest & Young. (2021). Applying IFRS IFRS accounting considerations of the Coronavirus pandemic.