Going Concern/ Employer covenant disclosures
2020 gave us a whole raft of challenges and many Trustees and Administrators would have experienced a whole host of additional questions from their auditors on the strength of their employer covenant, and their COVID risk assessments. Hopefully we are now at the end of the second and final lockdown, but the financial effect of the pandemic will be far reaching. Clearly the impact will depend on your industry sector, but 2021 is still going to include a continued focus on the trustee assessment of going concern.
ISA 570 is the Auditing standard on Going Concern, and this states that a scheme is considered a going concern unless the trustees have taken the formal decision to wind up, or a notice has been served to wind up the scheme or a trigger event has occurred which indicates that there is no alternative to wind up, such as contributions having stopped or the employer has experienced an insolvency event.
We are also required to report material uncertainties too, i.e. the employer entering the PPF assessment period, the employer experiencing financial difficulties and contributions that are consistently late.
The Pensions Regulator has published guidance to help Trustees with the difficult questions to ask of the sponsoring employer and also provide advice as to what the Trustees can do to protect the scheme, i.e. ensuring that dividends are not paid when contributions have ceased, obtaining a guarantee over the employer assets and also general increased monitoring of the employer performance.
It is important to remember too that a Trustee assessment of the covenant, should be for a nineteen-month period from the year end. This covers the twelve-month assessment period from the date of the audit report and the seven-month statutory reporting deadline.
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