9 What: other areas
of responsibility
9.1 Financial condition and projections
Many judgments and estimates, such as asset
be relevant. Management therefore prepares a going
concern assessment with sufficient detail to explain the
basis of its conclusion with respect to the entity’s ability
valuations, have to take into account the company’s to continue as a going concern. The audit committee
financial condition and financial projections. Oversight has to scrutinize this assessment and consider
of these aspects of financial reporting will contribute factors including:
to the audit committee’s understanding of matters
• H
► as management prepared monthly cash flow
related to solvency.
forecasts and monthly budgets for a period of at least
12 months from the date of the financial statements?
How has the audit committee satisfied
Is there a known cliff edge soon after the end of the
itself that, where relevant and to the extent
analyzed period?
this is appropriate, there is consistency
in the financial projections and models • A
► re assumptions underpinning the monthly
underpinning the various disclosures, both forecasts and budgets reasonable and
within the financial statements and in the adequately supported?
narrative section of the annual report? • H
► ave forecasts been tested by sensitivity analyses on
the significant assumptions, particularly in relation to
9.1.1 Going concern and solvency considerations levels of activity? Is the range of reasonably possible
outcomes wide enough in the context of market
Financial statements are normally prepared on
volatility?
the assumption that the company has neither the
intention, nor the need, to enter liquidation or to • D
► o cash outflows accurately reflect the timing of
cease trading. Rather, it will continue in operation for known liabilities, commitments and repayment dates?
the foreseeable future and will therefore be able to
• H
► ow feasible are any assumptions regarding new
realize and discharge its assets and liabilities in the
sources of finance or capital? Has the risk of breaching
normal course of business. This is referred to as the
any loan covenants been adequately assessed?
“going concern” basis of accounting.
• H
► as consideration been given to any contingent
There may, however, be circumstances that cast
liabilities or high-velocity risks that could materialize
doubt on this assumption and directors are required
over the assessment period?
to consider all the facts and circumstances that may
Audit Committee Guide 55
