Increased Economic Uncertainty Highlights The Importance Of ‘going Concern’ Disclosures
Consultation documents issued for comment
The New Zealand Accounting Standards Board (NZASB), a sub-board of the External Reporting Board (XRB), is inviting organisations to have their say into how their going concern position is disclosed in financial reports in the wake of growing economic uncertainty.
The NZASB has recently issued two consultation documents, known as exposure drafts, proposing more specific disclosure requirements for businesses, public sector and not-for-profit organisations on their going concern basis for preparing financial statements. Financial reports are prepared assuming that an organisation will continue to operate for at least the next 12 months.
The NZASB Chair, Kimberley Crook, said, “the proposals build on existing requirements in accounting standards and are designed to help entities to provide relevant and transparent information, which investors and other users of financial statements are looking for during periods of increased economic uncertainty.”
The economic effects of COVID-19 are expected to have a significant impact on the going concern assessments of a large number of organisations in New Zealand, both now, and for some time in the future. Many will need to apply significant judgement and/or consider the impact of material uncertainties in assessing their organisation’s ability to continue as a going concern.
The consultation documents propose more specific disclosure requirements where management has determined that the going concern basis of financial statement preparation is appropriate, but is aware of events or conditions that may cast significant doubt on the organisation’s ability to continue as a going concern. In these situations, readers of financial statements need clear disclosure.
“Directors will need to consider whether the organisation they govern should apply the going concern assumption for financial reporting purposes, and clearly disclose any significant judgements and material uncertainties they considered in coming to this conclusion,” said Crook.
While the proposed effective date is annual periods ending on or after 30 September 2020, organisations currently preparing their annual financial statements may find it helpful to use the more specific going concern disclosure requirements.
The comment period for the two exposure drafts closes 24 July 2020. The drafts are available at:
About the XRB
The External Reporting Board (XRB) is the Crown Entity responsible for financial reporting strategy and standard setting in New Zealand. Its focus is to establish accounting and assurance standards that engender confidence, assist in international competitiveness and enhance accountability. The XRB has two technical boards, the New Zealand Accounting Standards Board (NZASB) and the New Zealand Auditing and Assurance Standards Board (NZAuASB). For more information on the XRB, NZASB or NZAuASB visit www.xrb.govt.nz