Why concern about 'going concern?'

WHY all the fuss about going concern? The Financial Reporting Council, led by Baroness Hogg (pictured) has begun a review of reporting on going concern during the crisis. Not surprising you might think but the great avalanche of going concern reports at first feared fir companies during the crunch did not materialise.

The FRC has been fairly pleased with itself on this because of the belief that the guidance set out at the start of troubles, which reassured auditors and directors that confirming a line of credit was unnecessary to establish a company was a going concern, helped avoid going concern calamity.

But regulators are taking a fresh look at going concern. This is undoubtedly a good thing. The whispers are that this is due to worries about accounting standard IAS 1, viewed by some as flawed because it demands judgements based on information about the future. As one person complained to the Age, that’s demanding auditors and directors rely on their clairvoyance to get to a decision.

Maybe, maybe not.

However, the one thing regulators should avoid is producing something that could lead to “mechanical” going concern, or emphasis of matter, statements from auditors because they’ve been painted into a corner. Room for good judgement is also needed.

This week the courts said creditors could not “mechanically” tip companies into insolvency. That sounds eminently sensible and a good place to start thinking about going concern.