IFRS

Financial statements on a non going concern basis

Both IAS 1 ‘Presentation of Financial Statements’ and IAS 10 ‘Events after the Reporting Period’ suggest that a departure from the going concern basis is required when specified circumstances exist. Neither Standard however provides any details of an alternative basis of preparation and how it may differ from the going concern basis. Entities will therefore need to develop an appropriate basis of preparation. This IFRS Viewpoint addresses some of the issues that entities will face when doing so.

When is a going concern basis not appropriate?

IAS 1 states 'When preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. An entity shall prepare financial statements on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. When an entity does not prepare financial statements on a going concern basis, it shall disclose that fact, together with the basis on which it prepared the financial statements and the reason why the entity is not regarded as a going concern' (IAS 1.25). IAS 1 appears then to suggest that a departure from the going concern basis is required when the specified circumstances exist.

This is confirmed by IAS 10 which states that 'an entity shall not prepare its financial statements on a going concern basis if management determines after the reporting period date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so' (IAS 10.14).

Departing from a going concern basis

Neither IAS 1 nor IAS 10 provide any details however of any alternative basis and how it might differ from the going concern basis. Management should then choose accounting policies that will result in the most relevant and reliable financial information.

Our Viewpoint

Entities will therefore need to give careful consideration as to the appropriate basis of preparation bearing in mind their own specific circumstances. The purpose of this Viewpoint is not to provide guidance on determining whether an entity is or is not a going concern but to provide insights on the matters to be considered when a going concern basis is not appropriate.

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