Going concern – what disclosure is required in financial statements?

The COVID-19 pandemic has resulted in a stressed economic environment on an unprecedented scale in recent history. Pervasive lockdowns have substantially affected overall economic activity, resulting in many businesses experiencing reduced revenues and profitability, and liquidity squeezes, which may raise questions about their ability to continue as a going concern. Given the current environment, a greater degree of judgement than usual may be required to determine whether it is appropriate to prepare financial statements on a going concern basis.

While IAS 1 Presentation of Financial Statements includes some requirements regarding disclosure about going concern, they are not very explicit and can lead to disclosure about going concern uncertainties being somewhat abbreviated or lacking. However, IAS 1 also contains overarching requirements that would require additional information regarding an entity’s ability to continue as a going concern in some circumstances.

To support the consistent application of IAS 1 with respect to going concern disclosure, the IFRS Foundation has published educational materials which are summarised in BDO’s recent International Financial Reporting Bulletin, IFRB 2021/03 Going concern – IFRS Foundation publishes guidance on disclosures.

IFRB 2021/03 summarises the disclosure requirements in the following scenarios:

Entity situation scenarios