What do I state if new financing is uncertain?

The short answer

With a supported going concern assessment and an appropriate note. Do not present financing that has not yet been committed as certain.

Basis: art. 2:384(3) DCC; RJ 170 and RJk A2

What does the liquidity forecast show?

If the company needs new financing to continue, the board must examine how concrete that financing is. A conversation with a bank is something different from a signed agreement. The annual accounts must reflect that reality. Assess both the accounting policies and the information the reader needs.

Start with a liquidity forecast that shows existing obligations and realistic receipts. State when the shortfall arises and how much additional funding is needed. Do not work only with a favourable turnover plan. Also examine delayed payments, a lower margin and repayments that may become due earlier. The forecast is the board's own analysis; it must be traceable to contracts, order information and current figures. Note the reference date and update the calculation when important new information becomes available. That shows which assumptions actually support the continuation.

How certain is the new financing?

Assess the status of each source of financing. Is there an unconditional commitment, an offer with conditions or merely an intention? Must security still be provided or a third party's consent obtained? For support from a group company, also look at that party's financial capacity. A letter of support does not automatically have the same meaning as immediately available funds. Have the legal effect of important commitments assessed when they are decisive. Keep correspondence and agreements, so that the conclusion on continuation does not later turn out to rest only on verbal expectations.

Art. 2:384(3) DCC regulates the assumption of continuation and the situation in which it is incorrect or subject to reasonable doubt. The RJ clarifies reporting under material uncertainty about going concern in RJ 170 and RJk A2. Uncertainty does not in every case lead to the same basis of valuation; that requires an assessment of the facts. When applying going concern policies, describe the essential dependencies where required. Avoid a reassuring standard text when the financing is still open. Let the wording match the real state of affairs and the applicable reporting regime.

Which uncertainty do you explain?

Discuss the outcome before signing with the accountant or adviser and, if relevant, the lender. A later commitment may produce new information that must be assessed for the annual accounts. Record which information was available on which date. Meanwhile keep the operational measures separately: cost control, payment arrangements and any additional contributions. A note paragraph does not solve the liquidity shortfall, but makes the situation understandable for users. After completion, check whether the assumptions are still achievable. In case of acute doubt about payments, timely professional and legal support is more important than waiting for the next reporting cycle.

Sources

• Raad voor de Jaarverslaggeving (Dutch Accounting Standards Board): uncertainty about going concern

Read more