Going concern

*Source SNG Grant Thornton

Please note that every effort has been made to ensure that the advice given in this educational material is correct. Nevertheless, that advice is given purely as guidance readers to assist them with particular problems relating to the subject matter of the educational material, and African Venture Group will have no responsibility to any person for any claim of any nature whatsoever that may arise out of, or relate to, the contents of this educational material.

Going concern

Assessing an entity’s ability to continue as a going concern


IAS 1 contains guidance related to the going concern assumption and outlines when financial statements are prepared on the assumption the entity will continue as a going concern. IAS 1 explicitly states that at each reporting date, management is required to assess the entity’s ability to continue as a going concern and consider all available information about the future, which is at least, but is not limited to, twelve months from the annual reporting date. Management should consider a wide range of factors, such as: current and expected profitability, debt repayment schedules and potential sources of replacement financing and the ability to continue providing services. If management concludes that the entity may be liquidated (either by choice or because it has no realistic alternative but to do so), the going concern assumption would not be appropriate and the financial statements may have to be prepared on another basis, such as a liquidation basis. If there is material uncertainty about the entity’s ability to continue as a going concern, the entity should include going concern disclosure in the notes to its financial statements.


Because the assessment regarding an entity’s ability to continue as a going concern covers the period no less than twelve months from the annual reporting date, all events that occur during an entity’s subsequent events period should be considered when evaluating whether there is significant doubt about the entity’s ability to continue as a going concern. In other words, even if events during the subsequent events period are not considered adjusting subsequent events, they should still be incorporated into the going concern assessment. Furthermore, events or conditions that cast significant doubt on an entity’s ability to continue as a going concern should be disclosed if there are material uncertainties or if a significant amount of judgment is involved in reaching the conclusion about whether the going concern assumption is appropriate.


Sample disclosure

Since 31 December 2019, the consequences of the COVID-19 outspread have materially and adversely affected the supply and demand for the Company’s primary products and therefore, its operating results have been negatively impacted.


Workforce reductions resulting from illnesses and quarantines in the Company’s warehouses located in France and Singapore have resulted in critical interruptions of the Company’s distribution system. Combined with disruptions in the Company’s supply chain due to border closures, the Company has experienced significant delays in delivering its products. The Company had operating losses, negative cash flows from operations and working capital deficiencies for the period from 1 January 2020 to 31 March 2020 as follows: [insert figures here]


It is uncertain whether, and when, the Company will return to profitability and positive cash flows from operations. These uncertainties cast significant doubt on the Company’s ability to continue as a going concern.


The Company will need to raise capital in order to continue its operations. To address its financing requirements, the Company will seek financing through debt and equity financing, assets sales, and rights offerings to existing shareholders. The outcome of these matters cannot be predicted at this time.

African Venture Group

1 Nollsworth Crescent, Umhlanga, Durban, 4051

 

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078 115 6607

International:

+27 78 115 6607

Email: info@africanventuregroup.co.za

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