Going Concern Qualifications
A going concern audit opinion reflects the uncertainty that a company can continue operations in the near future. In general, this uncertainty is related to business continuity for twelve months. Currently, details of the extensive and long-term impact of coronavirus are unknown, but COVID-19 is known to have the potential to materially impact operations across a wide range of businesses.
70% of going concern qualifications were issued in respect of companies with a market capitalization under €100m with the Services industry most affected, followed by Manufacturing and Mining. (Services businesses include hotels, physical fitness facilities, hairdressing salons, beauty salons and the like.)
Key audit matters are designed to enhance usability and the provision of information in the opinion of the auditor. Audit disclosure is intended to describe the area of significant audit risk, a summary of the auditor’s procedures relevant to that audit area and important observations of the auditor regarding this risk (if necessary). Given the uncertainties regarding the future consequences of the coronavirus pandemic, auditors can address the risk of this uncertainty as a key audit matter.
90% of key audit matters were presented with respect to companies in the small to mid-cap range of under €100m and €100m – €1,000m respectively. Industries most affected are Finance/Insurance/Real Estate, followed by Services and Manufacturing respectively.
Emphasis of Matter Paragraphs
Emphasis of matter paragraphs address issues that the auditor considers fundamental to a common understanding of the financial statements. Given the widespread impact of coronavirus on companies and their financial statements, it is not surprising that the COVID-19 pandemic is mentioned as an emphasis in the financial statements.
Almost 60% of companies featuring emphasis of matter paragraphs are in respect of companies with a market capitalization under €100m. Manufacturing companies are most affected, followed by Finance/Insurance/Real Estate and Services businesses.
What emerges from these statistics aligns with insights to date in South Africa following three months of a State of National Disaster and 3 months of extended lockdown. Most affected by this pandemic remains SMME’s and core industries driving employment.