'Going concern' status is concerning auditors as year-end accounts approach.
As companies prepare to publish their year-end accounts, auditors have expressed concerns about the reporting of the “going concern” status of companies. FSA rules stipulate that the annual reports of listed companies should include a statement from the directors that sheds light on the firm’s prospects as a going concern.
As the Financial Reporting Council pointed out earlier this year, with the UK sliding into recession, companies’ status as a going concern is an issue that will need to be “considered in more detail by boards of directors”.
The worry is that a company’s statement regarding its status can impact on the willingness of investors, suppliers and trade credit insurers to do business with it. Consequently, auditors have warned that the upcoming reporting season will be a difficult period for auditors and their clients – the economic prospects for many companies are uncertain and nervous investors and insurers could be scared off if they don’t like what they see in a company’s going concern statement.
This week it was reported that BDO Stoy Hayward’s managing partner Simon Michaels was expecting a “challenging season of audits, with more uncertainty, with the financial market where it is, about ‘going concern’”.
“It really is incumbent upon the [accounting] profession to do everything they can to help management teams provide the clarity with regards to disclosures and reporting.
Simon Michaels
Michaels also highlighted that the impact of a negative outlook in a going concern statement would be much greater in the current economic climate than it would be normally. He added: “It really is incumbent upon the [accounting] profession to do everything they can to help management teams provide the clarity with regards to disclosures and reporting”.
Michaels also said it was important to avoid a “downward spiral” that could be caused by investor, supplier and credit insurer confidence being affected by “a greater incidence of going concern qualifications”.
So, how can auditors ensure that going concern statements accurately reflect a company’s status within the context of the wider economic conditions? According to Michaels, auditors will have to work in partnership with their clients and their lenders to reach an objective opinion of “going concern” that takes into account the problems affecting the economy as a whole.
