Accounting regulator, the Financial Reporting Council (FRC) is to consult on draft guidance on the assessment of and reporting on the going concern basis of accounting and solvency and liquidity risks to enhance the quality and depth of information investors receive about businesses over the longer term
The guidance is intended to assist directors in applying the relevant requirements in accounting standards and company law, incorporating recent regulatory developments such as the introduction of new UK and Ireland GAAP and the strategic report.
In September 2014, the FRC updated the UK Corporate Governance Code in response to the recommendations of the Sharman Inquiry on going concern and liquidity risks. The FRC issued related guidance for companies applying the Code, noting that it would issue guidance for non-Code companies in due course. This draft guidance is best practice for those companies.
Melanie McLaren, FRC executive director of codes and standards said: ’The Sharman Inquiry highlighted the need for clarity by all companies on the going concern basis of accounting. It identified the need to consider liquidity and solvency when analysing the principal risks a company faces and the need to take a broader longer-term view.
‘This guidance is intended to be practical and aims to assist directors in meeting their legal responsibilities in a proportionate and effective manner, whilst reflecting the de-regulatory nature of developments in corporate reporting for smaller companies.’
The guidance will, when finalised, replace the FRC ’s Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009 and An Update for Directors of Companies that Adopt the Financial Reporting Standard for Smaller Entities (FRSSE): Going Concern and Financial Reporting.
The FRC says the guidance encourages the use of assessment techniques and the provision of disclosures proportionate to the size and complexity of the company; it will be a matter of judgement for directors to determine how much is necessary for them to meet their legal responsibilities. The guidance is not directed at small and micro companies as these are not required to prepare a strategic report.
The consultation closes on 15 January 2016.
Details of the exposure draft are here
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