worldwide must file returns quarterly and annually. Sections 39 and
41 of the Nigerian Securities and Exchange Commission “SEC” Rules 2013 provide
for the filing of annual and quarterly reports respectively. The Financial Reporting Council in
Nigeria responsible for developing and
publishing accounting and financial reporting standards to
be observed in the preparation of financial statements of public entities
in Nigeria approved the use of the International Financial
Reporting standard issued by the International Accounting
The Going Concern Principle
The underlying assumption in preparation of financial statements for filing
of annual or quarterly reports according to the International Financial Reporting standard
issued by the International Accounting Standard (IAS) is that the company
is a going concern. For a company to be a going concern, it must be able
to continue operating long enough to carry out its commitments,
obligations and objectives. In other words, the company will not have
to liquidate or be forced out of business.
By the provisions of IAS1 paragraph 25 – 26, in
preparing financial statements, management is to assess the entity’s
ability to continue as a going concern and the company’s financial
statements are to be prepared on a going concern basis unless
management either intends to liquidate the entity or to cease trading, or has
no realistic alternative but to do so. The
standard requires that when management is aware of material uncertainties about
an entity’s ability to continue as a going concern, those uncertainties shall
Factors of Going Concern
In judging whether a company can continue as a going concern, management
must consider the degree of uncertainty associated with
the outcome of an event, the size and complexity of the entity, the nature and
condition of its business, the degree to which it is affected by external
factors, and any judgment about the future based on information available
at the time at which the judgment is made.
COVID-19 Uncertainties to Going Concern
Some events or conditions which may give rise to uncertainty of the company in being able to continue as a going concern are: adverse key financial ratios, inability to pay creditors on due dates, inability to comply with the terms of loan agreements, in ability to obtain financing for essential new product development or other essential investment, substantial operating losses or significant deterioration in the value of assets used to generate cash flows, labor difficulties or shortages of important supplies, etc. The question that arises is whether a company which has been adversely affected by the pandemic can continue reporting itself as a going concern?
A company which identifies uncertainties and plans to continue as a going concern may use the going concern basis of preparation of financial statement but must disclose these uncertainties. The board is advised to identify possible events or scenarios that could lead to corporate failure and disclose same in their report, ascertain whether they have identified issues that may have a significant impact on going concern and how they plan to address them unless they are remote or have remote possibilities of occurring. Such disclosures will help meet the information needs of financial statement users to understand fully the pressures on liquidity, viability and solvency. Boards are also to consider the potential impact of these matters on the company’s specific circumstances, paying attention to their current and potential cash resources, including access to existing and new financing facilities, revolving facilities, invoice discounting and reverse factoring.
Where the effects of the pandemic are identified and disclosed
by management, the auditor in accordance with International Standard on
Auditing (ISA) 570 should express an unqualified opinion but modify
the auditor’s report by adding an emphasis that highlights the existence of a
material uncertainty relating to the event or condition that may cast
significant doubt on the entity’s ability to continue as a going concern and
draw attention to the note in the financial statements that
discloses the uncertainty.
It is also worthy of note that in response to the pandemic, the SEC has approved in the first instance, a 60-day extension for the filing of quarterly reports as well as their 2019 annual reports.
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