Going concern for 2020 year end: considerations for asset management
ICAEW’s Investment Management Committee shares the following potential considerations which may help inform a professional judgement when making, auditing or otherwise reviewing a going concern assessment as part of 2020 year end reporting. These considerations may be relevant whatever the size of the entity and whether it is listed or unlisted.
- COVID-19 – technology, processes and markets have held up.
- Financing – facilities and support from banks have been present.
- Valuations – are going up because multiples are going up, but clients do not believe valuations and are nervous because the economy is in a downward trajectory; however markets are going up, hence valuations are increasing.
- Office Space – Working from home is now normal, and office space will be reduced. There are further lease issues around this, questions include: when do you impair a lease, how do you value exited leases, what will lease options be? This will be a big change for service organisations. Consider also the treatment of sub-leases under IFRS16/IAS40, where such assets are to be treated as investment property, and as such, the impairment question is focused on the part of the building sub-let rather than the whole building. This often makes impairment more likely in terms of weak market demand if the sub-let space is empty.
More information, guidance and analysis on issues affecting the investment management industry, can be found here.
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