24 / 488
Chapt er
3 /
Presentation of Finan cial Statements
(lAS
1)
15
6.1.5 In
extreme ly rare circ umstances,
if management beli eves that compliance with a particul ar
req uirement of the IFRS will be so misleading that it would co nflict with the objectives of the fi–
nancial stateme nts as laid down in the lASS ' s
Fram ework,
then the entity is allowed to dep art from
that requirement (of the IFRS), pro vided the relev ant regulatory framework doe s not prohibit such
a departure. Th is is referred to as "true and fair override" in some j uris dic tio ns . In suc h ci rcum–
stances, it is incumbe nt upon the entity that departs from a req uire me nt of IFR S to disclose
(a) Th at management has co ncl uded that the financial statements present fa irly the ent ity's
financial position, financial performance, and cas h flow s
(b) That it has co mp lied with all applica ble Stand ards and Int erpret ati ons except that it has de–
parted from a part icul ar requirement to achieve fair presen tati on
(c) The title of the Stand ard or the Interp ret ation from which the entity has dep art ed, the nature
of the departure, including the treatment that the Standard or Interpretation would require,
the reason why that treatment would be misleading in the circums tances that it wo uld co n–
flic t with the objective of the financial stateme nts set out in the
Framework,
and the treat–
ment ado pted
(d) The financial imp act on each item in the financial sta tements of such a departu re for each
period presented
6.1.6 Furthermore, in the ex tremely rare circ umstances when management co ncl udes that com–
pl iance with the requ irements in a Standard or Interpretati on would be so mislead ing that it would
conflict with the lASS ' s
Framework
but where the relevant regul atory framewor k prohibits such
dep arture, the entity shall, to the maximum ex tent possible, reduce the percei ved mi slead ing as–
pects of complia nce by disclosing: the title of the Standard or Inte rpr etati on in qu estion , the nature
of the requirement, and the reason why management has co ncl uded that complyi ng with that re–
qu iremen t is so misleadin g that it conflicts with the lASS ' s
Framework,
and, for each peri od pre–
se nted, the adjustment s to eac h item in the financial statements that management has co ncl uded
would be necessary to achieve a fair presentation.
6.2 Going Concern
Financial statements should be prepared on a go ing concern basis unl ess management int ends to
liqu idate the entity or cease trading or has no rea listic op tion but to do so. When upon assessment it
becomes ev ident that there are mater ial uncertainties regarding the ability of the busi ness to co n–
tinu e as a go ing concern, tho se uncert aint ies should be di scl osed . In the eve nt that the fina ncial
statements are not prepared on a goi ng co nce rn basis, that fac t sho uld be discl osed , together with
the basis on which they are prepared along with the reason for such a decision. In making the as–
sessment about the goi ng conce rn ass umption, managemen t takes into account all avai lable infor–
mation about the futu re, which is at least 12 months from the balance shee t date .
Case Study 1
Facts
XYZ Inc. is a manufacturer of televisions. The domestic market for electronic goods is currently not
doing well, and therefore many entities in this business are switching to exports. As per the audited fi–
nancial statements for the year ended December 31, 20XX, the entity had net losses of $2 million. At
December 31, 20XX, its current assets aggregate to $20 million and the current liabilities aggregate to
$25 million. Due to expected favorable changes in the government policies for the electronics industry,
the entity is projecting profits in the coming years. Furthermore, the shareholders of the entity have ar–
ranged alternative additional sources of finance for its expansion plans and to support its working needs
in the next 12 months.
Required
Should XYZ Inc. prepare its financial statements under the going concern assumption?
Solution
The two factors that raise doubts about the entity's ability to continue as a going concern are
( 1) The net loss for the year of $2 million