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Going Concern: The Impacts of Today's Economy: By: Ian Wall
Going Concern: The Impacts of Today's Economy: By: Ian Wall
Going Concern: The Impacts of Today's Economy: By: Ian Wall
Impacts of Today’s
Economy
By: Ian Wall
Breaking Down Going Concern
• The auditor has a responsibility to evaluate whether there is substantial doubt about an
entity’s ability to continue operating for a reasonable period of time
• Going = likely to be able to keep doing business
• Concern = the entity
• Reasonable period of time = one year from the issuance of the financial statements
• Substantial doubt = it is probable the entity cannot continue as a going concern
• 2014 FASB Changes
• More roles for an entity’s management
Categories Auditors Assess to Determine
Going Concern
• Management of entities need to assess whether the current market conditions cast
significant doubt as a “Going Concern”
• It is very difficult to predict how the coronavirus will play out and impact specific industries
• Since the “Going Concern” is based on a year time period, auditors will have to base their
assessment with high uncertainty
• There is a correlation between the effects of the coronavirus and the four major categories
that auditors look at
Implications
• Entity
• Need solid risk mitigation plans
• Management will need to revise budgets and forecasts
• Management should include various scenarios of how Covid-19 could play out in their plans
• Shareholders
• Will expect the company to be transparent with their current situation
• Will worry about a company’s leverage ratios and ability to obtain new lending terms
• Auditors
• Need to look at management’s assumptions with a degree of judgment to assess whether management has
made effective plans
• Need to make sure the uncertainties are included and noted in the company’s financial report filings
Relevancy to the Course
• “Going Concern” has appeared in numerous chapters of the course’s textbook and in
quizzes
• It is one of the most important principals that auditors are currently concerned about
• Covid-19 could impact companies for the next couple years, and recent graduates in the
audit field could potentially work for a client with “Going Concern” uncertainty