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Issue no. 54 | January 2021

Issue no. 54 | January 2021

Going concern is one of the fundamental assumptions underlying the preparation of the financial statements. Given the economic disruptions caused by the novel coronavirus (COVID-19) for entities across almost all sectors, there is likely to be an increase in events and circumstances which may cast significant doubt on a company’s ability to continue as a going concern. Therefore, management’s assessment of the entity’s ability to continue as a going concern might also undergo a change and would need to be updated. Recently, the International Accounting Standards Board (IASB) has issued an educational material which emphasised on the need of providing adequate disclosures relating to going concern by companies particularly in the current environment. In this edition of Accounting and Auditing Update (AAU), we will summarise key guidance provided by IASB on going concern related matters including disclosures to be considered by companies.

The instances of corporate fraud, particularly financial statement fraud have posed a greatest threat to the public trust and confidence in the capital markets and have impacted stakeholders across the financial reporting ecosystem. In January 2021, the Anti-Fraud Collaboration (AFC) has issued its report and identified the most common fraud financial statement fraud schemes basis the enforcement actions taken by the U.S. Securities and Exchange Commission (SEC) against companies, their employees, and outside auditors involving accounting or auditing issues. It also provides AFC’s observations on higher risk areas that are susceptible to fraud along with their insights on what companies can do to identify and mitigate these types of fraud risks more effectively. Additionally, it addresses the changes to the current business environment resulting from the COVID-19 pandemic and its impact on fraud. Our article on the topic discusses the findings of AFC and other considerations relevant to fraud deterrence and detection by companies as provided in the report.

Currently, there is no guidance in International Financial Reporting Standards (IFRS) for business combinations under common control. In the absence of any specific guidance, significant diversity has emerged in how the receiving company accounts for the transaction in its financial statements. The diversity in practice makes it difficult for users of financial statements, in particular investors to understand the effects of these transactions and to compare companies that undertake them. With a view to address these concerns and to provide users of the financial statements with better information about these transactions, recently, the International Accounting Standards Board (IASB) has issued a discussion paper which sets out its preliminary views on the accounting of a common control business combination by a receiving company in its financial statements. Our article highlights the IASB’s proposals in this regard.

As is the case each month, we have also included a regular round-up of some recent regulatory updates in India and internationally.

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