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Going concern
Extract from FRS102: Section 32.7-32.7B
32.7A An entity shall not prepare its financial statements on a going concern basis if management determines after the reporting period either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so.
32.7B Deterioration in operating results and financial position after the reporting period may indicate a need to consider whether the going concern assumption is still appropriate.
If the going concern assumption is no longer appropriate, the effect is so pervasive that this section requires a fundamental change in the basis of accounting, rather than an adjustment to the amounts recognised within the original basis of accounting and therefore the disclosure requirements of paragraph 3.9 apply.
OmniPro comment
Section 3 – Financial Statement Presentation – contains guidance and specific disclosures when the financial statements are not prepared on a going concern basis or there are uncertainties that cast doubt about the entity’s ability to continue as a going concern.
Once a decision has been made to cease post year end it is evident that the accounts should be restated to a break up basis.
The disclosure requirements referred to in Section 32.7B are that the financial statement must have disclosures detailing the fact that they have been prepared on a break-up basis the reasoning why the financial statements have not been prepared on a going concern basis.
See below an example disclosure where accounts are prepared on a basis other than a going concern.
NOTE: In the case of an audit, the disclosures should consider the requirements and implications of ISA 570, ISA 700, ISA 705 and ISA 706)
Example 6: Other than Going concern disclosure
Basis of preparation
As explained in the directors’ report on page X, the company intends to cease operations by XXXX and to transfer all its operations to XXXXX.
The financial statements have not been prepared on a going concern basis. Where appropriate, the carrying values of assets have been restated to their recoverable amounts, and liabilities have been restated to their estimated settlement amounts and classified as current. Provision has been made for all closure costs arising from the decision to cease trading.
Preparation of financial statements on a break up basis involves the company making estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances, and are continually re-evaluated.
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