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IASB asked to rethink going concern disclosures

The Australian Accounting Standards Boards (AASB) has called on the International Accounting Standards Board (IASB) to reconsider adding to its agenda the disclosure requirements about the assessment of going concern.

AASB chief executive Kevin Stevenson expressed disagreement with the international standard setter on its decision to not develop these proposals further.

The issue of going concern is covered by International Accounting Standard (IAS) 1 Presentation of Financial Statements.

In paragraph 25 of IAS 1 it is stated that the management of a company should prepare financial statements on a going concern basis, unless they intend either to liquidate the entity or to cease trading.

Paragraph 25 of IAS 1 also states that when the management is aware of material uncertainties that "may cast significant doubt upon the entity's ability to continue as a going concern", these uncertainties should be disclosed.

In November 2013 the IASB removed the proposals about going concern disclosures from its agenda after eight of the 16 IASB members voted against continuing developing them.

"Many IASB members were concern about the sensitive nature of these disclosures. Some were concerned that, in making these disclosures, an entity could be in greater risk of no longer being a going concern, i.e. the act of disclosure could become a self-fulfilling prophecy," the IFRS Foundation wrote in a staff paper this month.

In a letter to the IASB, Stevenson said the international standard setter should provide an opportunity for constituents to express their thoughts and opinions on the topic.

According to the Australian standard setter, the outreach conducted in 2013 by the IFRS Interpretations Committee showed there is diversity regarding when going concern disclosures are required.

"Many respondents to the outreach think that disclosures about going concern are either made too late to be useful or are boilerplate disclosures that do not provide users with relevant information," Stevenson wrote.

Stevenson also noted that the AASB is not aware of diversity in practice in Australia, however, there are differences between international jurisdictions.

"Disclosures requirements relating to significant judgement and material uncertainties about assessment of going concern should be consistent across jurisdictions and should therefore be addressed as part of accounting standards," Stevenson stated.

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