Explanation of a ‘going concern’
This key accounting concept is built into accounting standards. It represents the view of the directors, both individually and collectively as the board, that the company has the financial strength to remain in business for, at least, the period of twelve months following the date of approval of the accounts by the directors.
The MIA is a member of the CBI, whose lobbying, supported by the MIA, helped to ensure that the Financial Reporting Council moved swiftly to acknowledge the challenges which the current economic uncertainties pose to ‘going concern’ in this current reporting period. The FRC issued new guidance to directors as a result. For details see the link http://www.frc.org.uk/press/pub1781.html
Critically, the FRC guidance was helpful. It states that “Any absence, of confirmation of bank facilities, does not, of itself, necessarily cast significant doubt upon the ability of an entity to continue as a going concern. Nor, necessarily require auditors to refer to “going concern” in their reports”.
It is now very important for directors, auditors and investors to use this new guidance from the FRC, and so reach sensible conclusions which avoid the situation where an otherwise healthy firm receives a “going concern qualification” unnecessarily.
The CBI and MIA are currently waiting to see how this develops before calling for any further action.