Martin Williams, MD of Graydon UK, one of the leading credit referencing agencies, has been speaking with ACCA recently on the topical and thorny issue of going concern statements in audited accounts.
On his blog, he acknowledged what accountants are increasingly complaining about, on behalf of their clients. The problem (allegedly) is that somewhere in the complex process of information gathering, people in the credit industry are misinterpreting the statements and are panicking when they read references to 'material uncertainties' about future trading. They are then marking down companies' credit ratings – which, of course, makes them less able to access finance or to obtain credit from other suppliers.
The issue here, once again, is that going concern statements should not be treated as if they are qualified audit opinions. They are intended to be helpful to users – the auditor is effectively saying: 'Here is an issue we have come across which is worth bringing to your attention but we can see the company is doing something about.' It might simply refer to the difficult times facing companies and, hence, that it is impossible to be certain about the future.
But in these anxious times, if they are going to have the same practical effect on the company as the auditor saying 'we are not willing to expressing an opinion on these financial statements', then we need to work with the credit industry to make sure the going concern statement is better understood. The Financial Reporting Council has put out guidance on the issue, but maybe further steps are needed.
While it is tempting for accountants to put all the blame on the credit agencies for misunderstanding and over-reacting, a more positive response would be more helpful. Is the guidance clear and accessible? Has the profession done enough to explain to other parties the going concern issue? After all, this only rears its head when credit is difficult to get. Access to finance is still fragile for many and anything that endangers it should be scrutinised carefully. We would like to hear your views on this subject.
Lastly, it must be remembered that this is the first recession a whole new generation of business people (including bankers and credit agencies) have faced. We are all in this together. It should not be forgotten that while the credit ratings agencies have taken a lot of stick for their role in the financial crisis over the past two years, they have in some ways deflected the wrath that would otherwise have been aimed elsewhere – possibly at auditors.
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