Management’s ResponsibilityManagement’s Responsibility

Management’s Responsibility

8 The going concern assumption is a fundamental principle in the preparation of the financial report. Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realise its assets and discharge its liabilities in the normal course of business.

9 Some financial reporting frameworks contain an explicit requirement[1] for management to make a specific assessment of the entity’s ability to continue as a going concern, and standards regarding matters to be considered and disclosures to be made in connection with going concern. For example, Accounting Standard AASB 101 Presentation of Financial Statements, requires management to make an assessment of an enterprise’s ability to continue as a going concern.[2] In addition, certain legislation, for example the Corporations Act 2001, requires a formal statement as to the solvency of the entity to be made by members of the governing body and included as part of the financial report upon which the auditor’s opinion is expressed.

10 In other financial reporting frameworks, there may be no explicit requirement for management to make a specific assessment of the entity’s ability to continue as a going concern. Nevertheless, since the going concern assumption is a fundamental principle in the preparation of the financial report, management has a responsibility to assess the entity’s ability to continue as a going concern even if the financial reporting framework does not include an explicit responsibility to do so.

11 When there is a history of profitable operations and a ready access to financial resources, management may make its assessment without detailed analysis.

12 Management’s assessment of the going concern assumption involves making a judgement, at a particular point in time, about the future outcome of events or conditions which are inherently uncertain. The following factors are relevant:

• In general terms, the degree of uncertainty associated with the outcome of an event or condition increases significantly the further into the future a judgement is being made about the outcome of an event or condition. For that reason, most financial reporting frameworks that require an explicit management assessment specify the period for which management is required to take into account all available information.
• Any judgement about the future is based on information available at the time at which the judgement is made. Subsequent events can contradict a judgement which was reasonable at the time it was made.