Going concern assessment template

In some cases this may require the use of specialists, especially for highly complex financial models. Similarly, if the business quickly builds new, highly complex models to assess going concern, consider the appropriate level of testing for the model itself, in addition to the inputs and assumptions. If management has a history of poor quality or inaccurate forecasts under normal operating circumstances, the risk is likely higher in these less certain times.

At the time of testing and concluding, the outcome of many scenarios, such as the possibility of a second wave of infections, may not be known or predicted with accuracy. Management and auditors will have to apply judgement and consider the specifics of the business and its operations. Given the heightened uncertainty, it is very likely that more businesses and auditors will need to consider reporting material uncertainties. Assessments should cover at least 12 months from the date of approval of the accounts.

To reach their conclusion, auditors will need to obtain sufficient, appropriate audit evidence, potentially in new and expanded ways. Once a conclusion has been reached, auditors will need to consider whether further disclosure is required, both by management in the financial statements and by the auditor in the audit report. The Audit and Assurance Faculty has prepared a guide on how to report on material uncertainties related to going concern which auditors may find helpful.

Our thoughts are with everyone affected at this challenging time. We encourage all parties to stay up to date with the latest public health advice in their country. The Faculty has over 7, members drawn from practising firms and organisations of all sizes in the private and public sectors. Further resources can be found at icaew. Skip to content. Home Resources Audit and Assurance Professional scepticism Coronavirus considering going concern Auditing going concern. Coronavirus COVID : considering going concern — a guide for auditors This Audit and Assurance Faculty guide provides advice for auditors when testing the going concern assessments of reporting entities impacted by the coronavirus pandemic COVID Questions to consider include: How has the business model been impacted?

For example, a restaurant may have changed its business to an online delivery service rather than closing. The actions of other businesses in the same sector are likely to be relevant here. Are businesses in the supply chain at risk? Are alternative suppliers readily available, or difficult to find?

How does the business intend to respond? Are there additional legal or contractual issues? For example, a business may have contractual liabilities for non-delivery of good or services, onerous contracts or large defined benefit pension schemes.

Consider for example how trustees of defined benefit pension schemes are dealing with obligations relating to contributions, and, if the business is regulated, whether the business is at risk of not meeting regulatory requirements.

How has the business dealt with the consequences of any significant staff absences? High rates of absence for key employees could result in an inability to operate, or operate effectively. If staff continue to work, there may be relevant regulatory requirements to consider, designed to reduce the spread of the virus. How have revenue streams been affected by impacts on consumers and customers? Disposable income is likely to have fallen for many consumers, which could lead to reduced demand for non-essential products and services in particular.

Customers may delay or fail to pay outstanding or new debts. Has the business considered possible longer-term changes to revenue streams? It is possible for example that consumer tastes change as a result of a prolonged lockdown; sales may not return to pre-lockdown levels.

How have business customers been impacted? Business-to-business operations may see reduced demand. Consider whether business customers are likely to agree to re-negotiate terms, and how the business has dealt with provisions for additional bad debts.

How has cash flow and working capital more broadly been impacted? If customers are delaying payments to the business, this could impact its ability to meet running costs. Access to finance may have been affected by breaches of covenant terms, depending on lender decisions or concessions. Does the nature of the business give rise to additional risks?

Questions to consider include: Has the relevant business sector been able to trade as normal or faced restrictions that have led to reduced or suspended trading?

For example, businesses in the travel sector, such as airlines or hotels, and the suppliers who service them, are likely to see significant reductions in income due to the drop in the number of tourists and business travellers.

Some sectors, for example pharmaceuticals, health care and grocery retail, may see increased sales. Where there is rapid expansion the increased risk of over- trading should be assessed, particularly if customers have long periods of credit to pay for goods.

There may also be issues with staff availability and supply chains that reduce the ability of the business to fulfil all orders. Operations which are highly automated and require little human input, for example warehouses making use of automatic warehouse pickers, may be less impacted than those relying on people to find and package goods due to the risk of staff illness and social distancing requirements. Warehouses that were not previously open for 24 hours a day may be able to spread shifts to remain compliant with social distancing requirements, while still meeting existing or increased levels of demand.

Are there any pre-existing risk conditions in the business, such as a history of losses or a net liability position? These could be heightened in the time of crisis and beyond. The application guidance in ISA provides examples of relevant financial, operating and other events or conditions. Will the business be able to access government support?

The Committee previously considered a request for clarification on the disclosure requirements about the assessment of going concern in IAS 1. The Committee tentatively decided that these two questions should be addressed through a narrow-scope amendment to IAS 1. The Committee also decided to propose that a question be included in the exposure draft about whether the proposed amendments should include the alignment of the going concern assessment time frame in IAS 1 with the time frame set out in many local auditing requirements e.

The Committee, at its meeting, recommended that the proposed amendments be presented to the IASB for its consideration. Some of those concerns were fundamental disagreements with the need for an amendment. Specifically, one Board member believed current requirements were clear. He saw the proposed requirements as introducing disclosure overload and encroaching auditor and regulator responsibility.

A few Board members agreed to act as advisers. The staff intend to bring back revised proposals to a future meeting. The staff had prepared a staff paper to outline discussions by the Committee regarding the time period that should be covered by the going concern assessment required by IAS 1. The Board may revisit this topic at a future meeting. These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points.

Indications of withdrawal of financial support by creditors. Negative operating cash flows indicated by historical or prospective financial statements. Adverse key financial ratios. Substantial operating losses or significant deterioration in the value of assets used to generate cash flows.

Arrears or discontinuance of dividends. Inability to pay creditors on due dates. Inability to comply with the terms of loan agreements. Change from credit to cash-on-delivery transactions with suppliers. Inability to obtain financing for essential new product development or other essential investments. Operating Management intentions to liquidate the entity or to cease operations. Loss of key management without replacement.

Loss of a major market, key customer s , franchise, license, or principal supplier s. Labour difficulties. Shortages of important supplies. Emergence of a highly successful competitor.