ICAEW and the Institute of Chartered Accountants of Scotland (ICAS) have jointly published free-to-access guidance for owners and directors of SMEs to assess the prospects of their business in the wake of Covid-19
The guidance has been written by experts at ICAEW and ICAS, two chartered accountancy bodies, to aid small and medium-sized businesses that have been affected by the coronavirus crisis as they prepare their accounts.
Company directors are required each year to assess whether the business is a going concern when drawing up their annual accounts, and this should cover at least the 12 months from the date the accounts are to be approved by the directors.
But coronavirus has had a dramatic change on the performance and prospects of many businesses, leaving some under threat, and accounts will have to reflect its impact.
The publication explains to business owners and directors the importance of forecasting cash flow and how to reflect the impact of Covid-19.
Additionally, it provides suggestions on how to work with auditors and accountants during the pandemic, including the need to provide evidence which shows that conclusions reached regarding going concern are reasonable.
Michael Izza, chief executive of ICAEW, said: ‘Company directors are required to assess the viability of the business over the following 12 months when preparing their accounts, and this year they will have to factor in the impact of coronavirus when they make key assumptions.
‘This freely-available guide will help small businesses make those forecasts and identify key issues to consider.’
The report lists what company directors should specifically be looking out for when assessing their business:
- revenue and debtors;
- payments to suppliers and to utility providers;
- staff costs;
- rent and rates;
- loan repayments;
- bank covenants;
- inability to fulfil contracts and potential penalties;
- lack of funds; and
- business strategy in the short and medium term.
Bruce Cartwright CA, chief executive of ICAS, said: ‘Accounts must always give a “true and fair view” of the financial performance and position of the business.
‘In the current circumstances that may well necessitate the inclusion of a number of additional disclosures relating to going concern in the notes to the accounts to enable stakeholders to understand the impact that Covid-19 has, or may have, on the business.’
Covid-19 and going concern – Guidance for directors of SME businesses.