Financial auditing going concern post-balance sheet

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Our 4-part blog series on dealing with Covid-19 business challenges in the context of the going concern basis of financial statement preparation concludes with this as part IV. In this article, we explain the importance of IAS 10, dealing with events after the financial auditing reporting period, more specifically, between the balance sheet date and the date that the financial statements are approved for release.

The statement deals specifically with the financial statement implications of events arising after the reporting period i.e. after the balance sheet date. These events could:

Provide additional information pertaining to conditions that prevailed at balance sheet date.
Provide new information on circumstances or conditions that arose subsequent to the balance sheet date. These circumstances or conditions did not prevail or exist at the balance sheet date.

In the case of the first scenario above, where this information leads to a material impact on the financial statements, the appropriate adjustments thereto would be required. Generally speaking, in scenario 2 above, there would be no adjustment made to financial statements. The exception to both scenarios 1 and 2 above is, however, where going concern issues arise after the end of the reporting period. Should management determine after the end of the reporting period that the entity shall be liquidated, cease trading or has no realistic alternative to either, the financial statements cannot under IAS 10 be prepared on a going concern basis. Where the going concern issues in question arose after the end of the financial reporting period and financial statements prepared have been done so on the going concern basis, this would require that the financial statements be subsequently amended or redone on a basis other than going concern. Reach out to our financial auditing team for advice on how to deal with events after the reporting date in your entity financial statements.

The material in this blog post has been prepared with reference to “Going concern – a focus on disclosure” issued by SAICA, January 2021, to support the consistent application of requirements in IFRS® Standards.