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Dear Gromit,
For the assessment of the going concern of a company, it appears to be necessary to obtain a management account for a forecast of at least 12 months.
Would you mind telling me why 12-month forecast account shall be provided? Could the management account for a shorter period, say half year, be acceptable? If no such management account is available, what are the other compensating procedures to adopt to satisfy the going concern considerations?
Thank you for your help.
I’m not sure what you mean by ‘management account’. Could be management accounts, including a 12 month cash flow or a letter of representation.
Anyhow, going concern means that the organisation should continue for the foreseeable future and this is usually taken as the next 12 months. Hence the 12 month forecast.
Compensating procedures could be difficult as auditors would worry about why no 12 month forecast. However, if recent results were strong and there was plenty of cash and no legal claims pending, and no intention of closing the business or part of it, going concern could probably be assumed. It would be important to receive a letter of reperesentation from management.
Dear Gromit,
Thank you for your kind guidance.
Regarding the 12 month cash flow, would the auditors be required to check against the reasonableness of the forecast sales and purchases? If yes, what procedures are usually involved to be sufficient for the purpose.
Thank you once again for your help.
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