Your Going Concern Obligations Have Changed - What You Need to Know

The AUASB has issued a new going concern auditing standard, which changes the requirements for preparing and auditing going concern.  Management, directors and auditors all have greater responsibilities.

Management responsibilities

Directors remain responsible for assessing whether the entity can meet its obligations as they fall due, and if the financial report should be prepared on the going concern basis.

A documented going concern assessment is now expected for all entities, not just those experiencing financial difficulty. There is greater emphasis on:

• realistic assessments of the entity's ability to continue operating;

• supporting forecasts and assumptions with evidence;

• auditor review of assumptions, forecasts and key judgements; and

• governance, documentation and financial statement disclosures.

At a minimum, management should prepare assessments including:

• a cash flow forecast covering at least 12 months from the expected signing date of the financial report;

• evidence supporting key assumptions, including sales growth, refinancing arrangements, capital raisings, shareholder support and asset sales; and

• evidence that directors have reviewed and approved the assessment.

Assessments should be prepared early with particular attention to assumptions around financing, restructuring, covenant compliance and revenue growth. Early preparation avoids delays and provides time to address issues.

What your auditors will do

Auditors must independently evaluate that assessment and the evidence supporting it.

Auditors will review the entity's risks, economic conditions, financing arrangements, forecasting processes, internal controls and governance procedures.  As a result, management should expect more detailed enquiries and requests for supporting information.

How LNP can help

The revised standard comes at a time of higher financing costs, economic uncertainty, when making reliable going concern assessments more important than ever.  

Your LNP Audit & Assurance Director or Manager can assist with any questions or understanding the revised requirements, please get in contact.