* indicates required

A material uncertainty?

By Richard Burkimsher

Hawsons Chartered Accountants

GOING concern has long been an issue that needs to be considered by companies and auditors alike, and this has not changed during the current coronavirus pandemic. That being said, coronavirus is bound to have a considerable influence over many businesses’ assessment of going concern, and the uncertainties that can arise.

In normal circumstances, an entity is considered to be a going concern unless management either intends to liquidate the company, cease trading, or has no realistic alternative but to do so. This is more likely to be the case for a number of businesses in the current economic climate, with social distancing and closure measures affecting a large proportion of the country.

To assess a company as a going concern, management need to consider all available information for the future, which usually comes in the form of forecasts and budgets for at least the year ahead. Given the ever-changing nature of the pandemic, these forecasts and budgets will need to be updated regularly, and include the impact not just on the company itself, but its staff, customers, and suppliers. If a key supplier cannot provide adequate supply of a good, even where staff and customers are all still in place, it will make ongoing trade considerably more difficult. The business may face increases in costs to secure the supply from another avenue, as well as a downturn in custom and a fall in the availability of staff. Even businesses operating within the umbrella of ‘essential work’ may struggle to meet all of their obligations to all concerned parties. Insurance policies may also be affected, and ‘normal’ cover for losses may not extend to pandemic-related issues.

This makes going concern all the more challenging for management to assess, as there are so many factors to consider. Hand in hand with this is the challenge for the auditor of concluding on the appropriateness of management’s assessment, and to conclude on whether they believe there to be a material uncertainty around the entity’s ability to continue as a going concern. The auditor has a responsibility to obtain sufficient, appropriate evidence to support these conclusions, but this may not be readily available in current circumstances. The auditor’s considerations will then need to be very similar to those applied by management.

If there is significant doubt over the entity’s ability to continue as a going concern, the auditor will also need to obtain sufficient, appropriate audit evidence to determine whether a material uncertainty exists. If a material uncertainty is considered to exist, an assessment will still need to be made as to whether this prevents the entity from being a going concern.

In many cases, the most appropriate course of action may well be to delay the final approval of the financial statements until there is more certainty over the impact of the virus.

If you want to discuss any matters relating to the content of this article, contact Richard Burkimsher at


Companies mentioned in this article