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COVID-19: going concern considerations for micro-entity account preparers

6 October 2020: In light of the continuing economic uncertainty caused by the coronavirus pandemic, ICAEW’s Financial Reporting Faculty has published a guide on going concern considerations for those preparing micro-entity accounts.

Aimed primarily at preparers of micro-entity accounts in accordance with FRS 105, the newly published ICAEW Know-How guide summarises management’s responsibilities for assessing going concern and the associated practical implications for financial reporting, in light of the coronavirus pandemic. 

One of the key points raised by the guide is that the pandemic does not change management’s responsibilities for going concern. The definition of going concern and management’s responsibilities relating to going concern have not changed. 

However, given the adverse impact of coronavirus on society and the economy, preparers should bear in mind that management may now reach different conclusions than would have been the case prior to the pandemic. This may be particularly relevant for entities operating in industries which have been affected significantly, such as travel and hospitality.

In particular, going concern assessments developed prior to the pandemic, or in the early stages of the pandemic, are likely to no longer be fit for purpose and need revisiting. For example, an entity with a year-end in late 2019 or early 2020 may have been a going concern at its balance sheet date. However, this position may have changed after the reporting period date, due to the actual or potential impact of coronavirus. If the entity is no longer a going concern, and the financial statements have not yet been authorised for issue, the going concern basis would no longer be appropriate.

Due to the rapidly evolving nature of the pandemic it will, therefore, be important to review the going concern status of the business right up to the point at which financial statements are authorised for issue.

However, preparers should also bear in mind that accounting standards set a high threshold for departing from the going concern basis. For this reason, most accounts are, and likely will continue to be, prepared on a going concern basis, despite the pandemic.

To read the full ICAEW Know-How guide click here.

Further information and resources on FRS 105 can be accessed at icaew.com/frs105.