đ Why GoingâŻConcern Matters Now More Than Ever
In Edition 27 of Chartered One we considered the different interpretations of the Going Concern Statement required under IFRS and FRS, pointing out that both the FRC and the ICAEW had issued guidance during 2020 to assist management and auditors with the tricky matter of Going Concern assessments in the Covid era.
Not long after we had gone to press, the FRC issued a further news release which confirmed audit firms have implemented additional measures to enhance their evaluation of companiesâ Going Concern assessments since the start of the Covid-19 pandemic[1]. That was the good news.
The results of the review itself were carried on a separate linked document which identified that the review was on a sample of eleven audits which covered the seven largest UK audit firms. Some of this could be considered the not so good news!
"There was an inconsistent approach to testing the integrity of the Going Concern forecast models"
đ From Excel Pitfalls to Strategic Forecasting
This seems a somewhat heading euphemistic heading of Appendix 6 of the results of the review when one considers what is then revealed.
And bear in mind â these are a sample from the seven largest audit firms in the UK!
đšOn one audit the integrity of the forecasting model was not adequately tested.
đšOn another audit there was insufficient evidence of the testing of the forecasting model.
đšOn two further audits the audit procedures were limited to manual testing; the approach would have been enhanced by the use of automated spreadsheet (???) tools. (The question marks are mine!)
In a section highlighted as âGood practice examplesâ,
đšGiven the complexity of the models, some audits also used data analytical procedures, including Computer Aided Audit Techniques (âCAATsâ), to test the integrity of the cash flow modelsâŚ.. on three audits, we found that the use of specific tools to check the mathematical and mechanical accuracy of the models highlighted matters such as circular references, formulaic anomalies and hidden cells/input fields.
đšIn some cases, the auditors had engaged specialists to assist in checking the integrity of the forecasting models.
Given the propensity for spreadsheet models to generate all sorts of flaws, many not at all obvious to management, let alone âcircular references, formulaic anomalies or hidden cells/input fieldsâ why does the FRC appear to be condoning the use of âspreadsheet toolsâ to prepare forecast for âGoing Concernâ assessments.
Spreadsheets like Excel are wonderful tools - but are manifestly not for building reliable forecasts! "Given the complexity of the models" The FRCâs own text says it all.
đTo Strategic Forecasting
Good forecasts donât have to be complex! To produce reliable forecasts, management should be employing purpose-built forecasting software based on robust double entry type architecture which produce four-way reports, forecast balance sheets, profit and loss accounts, cashflows and funds flow statements. With these forecast reports, all integrated and balanced, management â and the very relieved auditors â can concentrate on the important issues of whether the inputs are sound and sensible and concentrate on the outputs, generated in familiar accounting format, rather than worrying about formulaic anomalies and hidden cells and input fields! Or having to hire in specialists to check the integrity of the forecast models!
As stated above â good forecasts donât have to be complex. Comprehensive yes, dealing with multi currencies, multi bank accounts, consolidations, just about any type of loan imaginable, fixed assets, auto-calculated depreciation, wages, PAYE, NI, Pensions, multiple stock and WIP calculations, invoice discounting, various capital structures, departments, cost & profit centres and gross profit percentages, Key Performance Indicators, What if scenario planning; these are the sorts of features available in a comprehensive forecasting package.
Why ever would any company or their auditors wish to waste manpower - and expose themselves to the wide and varied array of problems from multiple sources using Excel for their forecasts as highlighted in the European Spreadsheet Risks Interest Group website? Especially when there is purpose built reasonably priced forecasting software available?
đ ď¸ ForecastâŻ5: Built for Robust GoingâŻConcern Forecasts
With ForecastâŻ5, youâre equipped to handle the complexity of goingâŻconcern modelling:
đšMultiâyear forecasts with full P&L, balance sheet, cashflow and fundsâflow.
đšWhatâif and reverseâstress testing to gauge how extreme scenarios impact survival.
đšTransparent assumptions log and auditâtrail baked in, so every forecast, judgement and input is documented.
đšDesigned for integration, scalability and reliabilityâmoving your forecast away from errorâprone spreadsheets.
â Closing Statement: Move From Assumption to Assurance
When your organisationâs future hinges on the goingâŻconcern assessment, you need more than âwe hope things will be okay for 12âŻmonths.â You need a forecasting platform thatâs auditorâready, boardâtrusted and stressâtested.
ForecastâŻ5 turns opaque spreadsheets into transparent models, complex judgement calls into documented insights, and potential uncertainty into actionable clarity. Donât let your organisation wait for the next auditâfailure headlineâequip your team today, build credible forecasts, and lead with confidence.
Sources:
https://cfo.economictimes.indiatimes.com/
