Going Concern - Double Jeopardy

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In this month’s issue of Spotlight on Accounting Errors we consider errors that can arise when dealing with an entity’s going concern disclosure obligations.

Following a corporate collapse, it is common for the failed company directors and management to be in the spotlight regarding their failure to adequately disclose the uncertainties and risk about the ability of the entity to continue as a going concern and the key judgements applied in making their assessment that the entity could continue as a going concern. Typically, when entities consider their going concern disclosure obligations, they address the issue of whether there are material uncertainties that require disclosure in accordance with AASB 101 paragraph 25, failing to provide information regarding management’s evaluation of the significance of those conditions or events and plans that led them to conclude that those uncertainties were not material as required by AASB 101 paragraph 122.

Failure to disclose the key judgements applied in determining that there were no material uncertainties regarding the entity’s ability to continue as a going concern, can be a reason for litigation against company directors, management, and their auditors of failed companies.

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