Audit implications of comfort letters from owners.
Firstly lets be clear what these letters of support from SISU/LB to SBS&L are (there will have to be a separate ones to Otium (from ARVO/SBS&L) ). It is an expression of intention at the date at which it is signed that the Loans provided will not be called in and that the intention is to help SBS&L and Otium source additional funding (either internally or externally). It is not a contractual commitment to actually do either of those things. It states for the foreseeable future, which you might think implies it cant be called in, but that is not the case. If circumstances at SISU or ARVO change or it is in their best interests to call the loans in then they can, next month, six months away, next year. They just don't have the intention on 27/02/2017 when the reports were signed
Implications for going concern. Well the letter should be the last piece in the jigsaw not the thing that going concern is pinned on entirely. There must be a viable plan including cash flows budgets , there must be issues such as potential loss of Academy, training site or home ground addressed, issues such as the need for funding in 6 months addressed, the potential damage of relegation will do to turnover, the possibility of player sales, the windfall from Wembley, the potential for the sale of Ryton, does it work for at least 12 months after signing the report, can the club afford to put a viable squad together next season (2017/18), what has happened between 01/06/2016 and 27/02/2017 when reports signed, the recent history and other such issues.
Having addressed the actions/plans of the directors on these issues then you add in the comfort of a letter of intent from the owners, where the auditor will have to satisfy themselves they can rely on those intentions, that the owners have a history of support, are able to support, that they have access to sufficient funds to support etc. It is not, or should not be, and is not a matter of blindly accepting a piece of paper expressing at a particular date an intention. Without the information in the previous paragraph then there is no way of knowing what support is required, if you don't know what is required you cannot assess the owners intention to support the club.
The auditor must investigate the basis of all these and similar issues before forming an opinion on going concern. Must find evidence that supports their opinion not just accept what they are told. You have to assume the auditors have satisfied themselves on all this
Can other creditors rely on these letters, they could choose to but I think that would be very unwise. (would say that about any business in similar circumstances not just CCFC). Recent court cases have indicated that the comfort such letters give to creditors is not as great as it might seem
The material uncertainty is not whether there is a letter as such, it is whether there is a going concern with sufficient funding, a viable business at least 12 months from now, is there any reason for the major creditors to pull the plug and do they have an intention/need to do so.
