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1 Jun. 2009

AICD and AUASB release publication to assist company directors assess

With Australian companies and other entities experiencing difficult and uncertain economic conditions, some of the most significant impacts may be in the area of financial reporting - in particular, directors’ assessment of their company’s ability to continue as a ‘going concern’.

With this in mind, the Australian Institute of Company Directors (AICD) and the Auditing and Assurance Standards Board (AUASB) have issued a publication, Going Concern issues in financial reporting: a guide for companies and directors, which explains the concept of going concern and assists company directors in performing and reporting on their going concern assessment.

Going concern is a fundamental principle underlying the preparation of the vast majority of annual reports and financial reports of Australian companies. Australian Accounting Standards require directors to consider whether there are material uncertainties that would lead to significant doubt about a company’s ability to continue to pay its debts over at least the next 12 months, and to make adequate
disclosures in the financial report if uncertainties are identified. Auditors are required by Australian Auditing Standards to evaluate the directors’ assessment of the company’s ability to continue as a going concern.

AICD chief executive, John Colvin said the publication will provide valuable assistance to directors.

“Difficult or uncertain economic conditions present challenges for directors, who need to ensure that they prepare thoroughly for their assessment of going concern and make appropriate financial report disclosures,” Mr Colvin said.

AUASB Chairman, Merran Kelsall said the publication will help company directors address their going concern assessment plans and auditor feedback, prior to the preparation of the financial report, helping to avoid any last minute going concern issues for the organisation.

“Appropriately addressing the auditor’s requirements, in the company directors’ going concern assessment, is essential to minimise the risk of the auditor issuing a qualified audit opinion due to limitation of scope or inadequate financial report disclosures of going concern issues,” Ms Kelsall said.

To assist directors and other stakeholders such as the business media, the guidelines distinguish between the sometimes confusing concepts of ‘insolvency’ and ‘going concern’, including an overview of the relevant law to explain what constitutes ‘insolvency’.

It examines the distinctions between an ‘unqualified opinion with an emphasis of matter’ paragraph, a ‘qualified’ audit opinion and a ‘disclaimer’ of audit opinion, which are not always well understood by some readers of financial reports. It also explains the nature and range of possible auditor’s opinions relating to going concern issues, to enable directors to be better informed of the audit implications.

The publication is specifically aimed at for-profit companies, particularly listed companies, and their directors, but may also be useful for directors of unlisted and other companies, other disclosing entities and non-corporate entities, such as not-for-profits with similar reporting and regulatory responsibilities related to going concern.

It may also provide easy-to-understand information for readers and users of annual reports, including investors and the business media.

The AICD/AUASB Guidelines are now available to download free at www.auasb.gov.au and at www.companydirectors.com.au. Hard copies can be pre-ordered on the AICD website for $19.95 (members) or $25 (non-members).

AUASB Media Enquiries:
Michelle Frenkel
Communications Manager
Email: mfrenkel@aasb.gov.au
Phone: 03 9617 7629 or 0419 394 375

AICD Media Enquiries:
Steve Burrell
General Manager Communications and Public Affairs
Email: sburrell@companydirectors.com.au
Phone: 02 8248 6627 or 0407 708 485