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Going concern implication and assessment

Going concern implication and assessment

In terms of Section 22 of the Companies Act 2008, a company must not carry on its business recklessly, with gross negligence, with intent to defraud any person or for any fraudulent purpose or trade under insolvent circumstances. If the Commission has reasonable grounds to believe that a company is engaging in any of these conducts, the Commission can require that the company must cease carrying on its business trade.

As a business manager, trying to ensure that the company is a going concern and has sufficient cash flow to meet all of its debts, can seem like an impossible task with all the turbulent economic conditions over the last few years.

This does not need to be an impossible task, as there are certain assessments that can be implemented to identify problem areas within the business. This identification will enable management to become preventative in improving these problematic areas and as a result, ensure that the business will continue being a going concern.

There are four fundamental assessment areas to consider, namely:

  1. Historical financial performance and position,
  2. 12-month operational cashflow forecast assessment,
  3. Tax compliance and
  4. Secretarial compliance.

A historical trend assessment can provide significant insight into areas that are deteriorating the business operations, which will lead to the business not being a going concern. A 12-month forecast assessment can assist in identifying situations where the business will not have sufficient funds to cover its obligations and in effect not continue trading as a going concern in the near future. Both these assessments will highlight problem areas that can still be resolved before the crisis truly become unmanageable.

The assessment of tax and secretarial compliance can greatly assist the business in reducing future penalties and interest incurred due to non-compliance, late or non-submission for statutory requirements.

Even though one might be very involved with the business operations, having an independent person assisting with these assessments, can provide fresh perspective and direction in ensuring that the business is and remains a going concern.

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Source: SAIT

National Treasury announced the temporary reductions in the general fuel levy, which will decrease by R1.10 per litre over the two-month period from
6 April 2022 to 31 May 2022.

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