Here today, here tomorrow
It seems curious, given that directors are responsible for the preparation of financial statements, that the one area where they often feel little ownership are the going concern disclosures. Clearly not in terms of the stewardship of the business and the conclusion made in relation to the going concern assumption but in terms of the wording that eventually ends up in their financial statements!
Many owner/directors I meet for the first time often say that they feel at the mercy of the faceless technical departments of their auditors, who would like them to disclose in their accounts something which could be construed as a self fulfilling prophecy, a technical team that have never met them and give the impression that they are more concerned with the risk management of their respective employer than helping them its clients. Apparently the respective audit partners have even mentioned, in “a computer says no” way, that they are unable to sign the audit report without the approval of said technical department.
The problems experienced by many businesses, from the time of the economic downturn, prompted the Financial Reporting Council’s Going Concern and Liquidity Risk Guidance for Directors and later a revised International Standard on Auditing for auditors to follow in the area of going concern.
For certain businesses the going concern assessment is still fairly straightforward but there are still a significant number of others where it remains tricky. You might be waiting for that next big deal to be signed or for the bank to agree to renew or extend your current facilities.
For those of you in that camp one issue is visibility. Many companies only have history as the indicator of what next years revenue might be but we unfortunately always know what our costs are! The timeline involved is also an issue because you have up to 9 months to file your annual financial statements yet need to produce, at the time of signing, projections for the foreseeable future, which historically has been assumed to be a period of not less than 12 months but may be extended to cover your whole business cycle. Consequently as you approach your next year end you may need to forecast forward for a period of at least 21 months.
That is why a pre year end meeting with Barnes Roffe can help you. That meeting can be used to analyse the result for the year to date, look into your predicted annual result and also the outlook for next year. This information can be compared to the level of your currently agreed facilities, to highlight where those need to be extended or renewed, and the covenant headroom in any upcoming tests predicted. Any loan to value issues for mortgaged buildings would also be highlighted to you in good time.
Our partners are experienced and will advise you of the guidance available in this area. We do not rely on those faceless technical departments. At Barnes Roffe your partner, who understands your business, will not defer the decision making process in this most critical and sensitive of areas. To do anything else would be power without responsibility. Where specific disclosures are necessary we do not leave it at that and fail to help you on the basis that if it all goes wrong they as auditors and you as directors will be OK. We take our responsibility to obtain sufficient evidence regarding the appropriateness of your use of the going concern basis seriously. We will critically but constructively assess your projections and ask about your plan B. This dialogue will help you in your thought process to produce a robust achievable future plan. I’m happy to say that all of the clients that I’ve approached in this way are still here today, despite being in sectors that have suffered considerably in the past few years.
If the above difficulties sound familiar and you would like some guidance in this area please do not hesitate to contact our team of partners.