It’s high time the burden of the ‘going concern statement’ was reformed. The FRC has a plan to compel company directors to issue statements of ‘significant doubts’ about the financial viability of their companies.
So far auditors have had to issue going concern statements in their audit reports. These are agreed with directors, but it falls to the auditors all the same.
Trouble is there’s been a traditional reluctance to issue them because of fears that the statement itself could precipitate a collapse. ie. the going concern statement could be viewed as a serious threat to a company’s status as…a going concern. Oh dear.
Of course, placing the burden with directors raises the same point, though it does lift the pressure off auditors (something they will be mightily thankful for). Directors will still feel that if they make the statement they will see it do the damage when there might have been a feasible rescue strategy in the offing, if only everyone was to stay calm and let the them get on with it.
Trouble is the boiler plate nature of the current options – 1. confidence, 2. doubts about the business being a going concern, and 3. the business is not viable. Going concern is clearly the only conservative option if the auditor has worries. It strikes me that the going concern statement requires different shades of urgency itself, perhaps three grades. That might be an effective way of softening the blow of making a statement without sending the company over the edge.
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