Extracts from relevant Accounting Standards for Private Enterprises (ASPE)
Section 3841, Economic Dependence, paragraph 3841.02, and Section 1400, General Standards of Financial Statement Presentation, paragraphs 1400.07, 1400.08, 1400.17, and 1400.18
Section 3841 establishes disclosure standards for economic dependence and other significant volumes of business in the financial statements. Paragraph 3841.02 states that when the ongoing operations of a reporting enterprise depend on a significant volume of business with another party, the economic dependence on that party shall be disclosed and explained. Reporting economic dependence allows users to understand the overall impact, often reported in percentages and/or dollar value, of certain customers, suppliers, and others that the entity relies on. For example, climate-related risks like a shortage in availability of a certain type of produce due to drought or high temperatures negatively affecting crop yields could significantly impact an entity that economically relies on one or a few contracts. Changes in consumer behaviours to more eco-friendly suppliers may also impact an entity that is unable to adapt.
Entities who are economically dependent on other entities may become a going concern if they are unable to replace the suppliers, customers, distributors, etc. Section 1400.07 states that when preparing financial statements, management shall make an assessment of an entity’s ability to continue as a going concern. Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
Paragraph 1400.08 states that in assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but is not limited to, 12 months from the balance sheet date. The degree of consideration depends on the facts in each situation. Factors such as the history of profitable operations, access to financial resources, current and expected profitability, debt repayment schedules, and potential sources of replacement financing are considered before an entity determines if a going concern basis is appropriate or not.
