Webinar Going Concern Part 2: Trading While Factually Insolvent

Overview:

In South Africa it is not uncommon in business for an entity’s liabilities to exceeds its assets. When the liabilities exceed the assets, factual insolvency exists. The directors of an entity is responsible to ensure that an entity operates in a responsible manner.

Auditors need to consider the actions taken by the directors in the circumstances.

There is no prohibition against an entity continuing to trade while it is factually insolvent, however, it does raise the risk for potential reckless trading or even fraud, in the sense that liabilities may be incurred while the entity is not able to repay them. Trading while factually insolvent also carries possible significant legal, financial, and ethical implications.

Directors may face personal liability, creditors could suffer losses, and stakeholders may be misled about the entity’s true financial health. In such circumstances, auditors play a critical role in assessing the going concern status of the entity and providing stakeholders with an appropriate opinion of the entity’s financial position.

Audit regulators have identified going concern as a common deficiency from engagement inspections, indicating that auditors do not always conduct sufficient audit work on these distressed entities. This oversight leaves gaps in identifying potential misstatements, fraudulent practices, or risks that could impact the financial statements. Too often, auditors rely heavily on management’s assumptions without the necessary professional skepticism, and as a result, entities with unqualified or without a material uncertainty paragraph, continue to trade, exposing creditors and investors to further losses.

Auditors are required to increase the depth of their work on such entities, applying additional procedures to ensure that the audit risk is reduced to an acceptable level, or that the audit report is appropriate. This includes enhanced scrutiny, more rigorous assessments of cash flow forecasts and going concern assessments, and improved communication with audit committees and management.

This training course will give participants a practical understanding of possible audit risks associated with trading while factually insolvent and possible audit procedures the auditor can perform to address the risks identified in high-risk environments, ensuring stakeholders receive reliable and transparent financial information.

Content and outline:

Explanation of the following concepts and demonstration of their practical application:
• Audit risks
• Responsibilities of auditors and independent reviewers
• Possible audit procedures to reduce audit risk to an acceptable level
• Reportable irregularities
• Consideration of the impact on the audit report

Certification:
Upon completion of the course, participants will receive a verifiable Bronze LEAF attendance certificate.

Registration:

To register for the Trading While Factually Insolvent Webinar please submit the form below.

We will get in contact with you directly to arrange all attendance and payments.

We look forward to seeing you there.

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