February 3, 2021
Published: Accountancy Europe
When a company collapses, all stakeholders are affected, from employees to investors, and it eventually erodes the public’s trust in financial markets.
This publication, with its counterpart on fraud, presents recommendations to strengthen the financial reporting ecosystem. This is especially topical after recent corporate failures, fraud cases and companies getting under pressure due to the ongoing COVID-19 pandemic. We thus re-examine the role of key parties to make the system more resilient: those within the company, external auditors, standard setters, legislators and public oversight authorities.
The system should become better at dealing with and communicating on issues with a company’s ability to continue as a ‘going concern’. Simply put, if it will remain in business for the next 12 months. With this aim, we propose the following recommendations:
o broaden companies’ work effort
o mandate disclosure on companies’ risk management systems on going concern and expand the auditor’s involvement
o mandate going concern disclosure even if no uncertainties
o change in mindset, transparency and communication
o mandate an audit committee in each public interest entity
o clarify and harmonise the period for going concern assessment
o broaden auditors’ area of consideration and work effort
o make early warning mechanisms for auditors effective
We also invite relevant parties to explore whether and, if so, how assessing companies’ longer-term viability and resilience, and interconnecting of financial and non-financial information could contribute to this aim.