Perspectives

The pandemic-fueled rise of going concern risk

5 key things to know as you evaluate your company

Evaluating your company’s ability to continue as a going concern may not have been a significant challenge in past years. But the pandemic is making it hard for CFOs to predict what’s coming next week, let alone next year. If your organization is facing increased going concern risk, it’s critical to prepare for what may lay ahead.

Going concern’s growing presence

For many companies, demonstrating the ability to continue as a going concern has not historically been a major burden. In 2017, the Financial Accounting Standards Board (FASB) issued ASU 2014-15, stipulating that it is a company’s responsibility, not solely its auditor’s, to assess its ability to continue as a going concern. Even so, a quick look at sales projections, fixed costs, and financial obligations was often confirmation enough that a business could confidently say it would still be able to meet its obligations as they becoame due over the next 12 months. For many CFOs and their teams, it was one of the simpler steps of completing annual financial statements.

COVID-19 has disrupted this process.

Going concern risk in a pandemic

The economic impacts of the global pandemic have been massive. Consumers have stayed home. Supply chains have been interrupted. Entire industries have been shut down. Companies that have never before struggled to demonstrate their financial health are taking a hard look at the possibility of expressing doubt about their future. What has happened was unpredictable, and what’s ahead is uncertain.

As a CFO, disclosing doubt about your company’s ability to continue as a going concern is an action you hope you never have to take. But it’s an action that, for most companies, is more likely today than it was a year or two ago. If indicators of going concern problems have you mulling over such a move, you certainly aren’t alone.

A disclosure of doubt about your company’s ability to continue as a going concern is no small thing. To effectively deal with its ramifications, you should keep several key things in mind.

The pandemic’s future impacts are unknowable. And progress toward normalcy isn’t linear. Things may be trending well one day, but an unexpected setback in the fight against the virus can reverse that trend.

Consider this your wake-up call

For many companies, COVID-19 has changed the determination of going concern risk from essentially a check-the-box exercise to a primary CFO focus.

With more and more companies giving additional thought to a disclosure of doubt over their next 12 months, CFOs need to understand the stakes, communicate effectively with key stakeholders, and lead their team through an informed and responsible determination and disclosure process.

Because when it comes to evaluating doubt about your entity’s ability to continue as a going concern, going through the motions won’t cut it.

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The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

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