ClaretPete001 wrote: ↑Tue Jun 04, 2024 1:44 pm
I've moved this debate onto here.
In my view, the Directors are hardly likely to say 'the principal risk to the group is the possibility of the football club's relegation'...(because we have loaded the club with debt). Or anything other than what they have said...
And the Auditors cannot say anything other than 'the accounts have been correctly prepared using the going concern accounting basis and that their "opinion is not modified in respect of" the material uncertainty' because a material uncertainty isn't a comment on how the accounts have been prepared. And the period in question is not covered by the scope of the audit.
Clearly, the club could sell a lot of playing assets, which would satisfy the auditors but it has an impact upon the quality of the players at the club not least their attitude to selling players and the subsequent negotiations, which was the subject matter of the thread where this debate began.
You either think the material uncertainty has some meaning or you don't...! If you think it is simply just one of those things that is put there because of relegation then so be it. I am going to counter with (amended as advised):
The crux of it is that the other 2 relegated teams and Forest have not had a material uncertainty on their accounts. Everton who the auditors say themselves were relatively unlikely to be relegated have had it. The inference therefore is that what differentiates the five clubs mentioned above is not relegation per se but a weak cash position when faced with relegation.
I don't see how else you can interpret it.
Pete, great idea moving the debate.
Quite right, the directors did say "the principal risk to the group is the possibility of the football club's relegation" The financial status of the club is reported in the club's accounts. That's the starting point for all comments. They also go on to say "relegation will result in a reduction in the club's turnover and would bring forward debt reduction measures on external borrowings."
Note 2.4, Going Concern, on page 20 is comprehensive. It references the steps the club would take to reduce cost base and borrowings to "a level more sustainable for a Championship club." Note 2.4 concludes by stating that "the directors have considered the financial stability of the group for the next 12 months from the date of signing these financial statements. They have assessed financial performance and are satisfied that it will have sufficient resources available to be able to meet its obligations as they become due and therefore remain confident it will continue to be a going concern."
I've highlighted in
bold your suggestion about what the auditors might or might not say, including your suggestion that a material uncertainty isn't a comment on how the accounts have been prepared, plus your suggestion that the period in question is not covered by the scope of the audit.
I recommend you read the second paragraph of BDO's "Opinion on the financial statements" - page 8 - and take note of what BDO states is in the scope of the audit. It includes "notes to the financial statements, including a summary of significant accounting policies." Everything that the directors say about going concern and material uncertainty, including the cash flow projections for the 12 months from December 2023 to December 2024 are in the scope of the audit.
If BDO disagreed with going concern they are required to say so - they didn't. If BDO didn't agree that the accounts present a true and fair view they are required to say so and qualify their audit opinion accordingly - they didn't.
Perhaps you are unclear why the 12 months from the date the accounts were signed off is mentioned in the financial statements. Accounting standards require the directors to consider the potential impact of events for the 12 months period after the accounts have been signed to support their decision to present the accounts using going concern. International Auditing Standards also require auditors to consider the projections the directors prepare for this period. Thus the accounts are presented for the financial year from 1st August 2022 to 31st July 2023, plus with knowledge through the internal management accounts for the period from 1st August 2023 until the accounts were signed on 19th December 2023, plus the 12 months cash flow projections ending on 19th December 2024.
Again, BDO have reviewed the directors' cash flow projections, these projections are within the scope of BDO's audit. BDO have mentioned, just like the directors did, the material uncertainty and have issued their audit opinion in the full knowledge of and including these cash flow projections.
What do I think of the material uncertainty? I welcome both the directors mention of the material uncertainty as well as the auditors opinion in the audit report. If I'd been preparing BFC's accounts on behalf of the directors, or if I'd been representing BDO as their auditor, I'd have done exactly the same as has been done. (I was both an accountant and an auditor at different stages in my career). Pretending that something doesn't exist doesn't address the issue. Recognising the importance of meeting obligations as they become due is the first step in managing those obligations.
The club is now almost half way through the 12 months cashflow project period. I expect the the new financing agreement with MGG Lux entered into in Jan 2024 addressed a significant amount of the "debt reduction measures on external borrowings." We should also assume that Vincent Kompany joining Bayern Munich and the associated compensation to BFC is a positive for the club's cash flows.
