The Financial Reporting Council (FRC) has issued a two-month consultation on going concern and liquidity risks following the outcome of the Sharman report.
The Sharman panel was commissioned in March 2011 to identify lessons from the financial crisis and recessionary environment for companies and auditors, and to address going concern and liquidity risks.
As a result, the FRC said that to improve the robustness and reporting of the going concern assessment, the boards of companies complying with the FRC's Corporate Governance Code should:
Lord Sharman said: The panel believes this will be radical for many companies but that, if implemented effectively, they will support better risk decision taking; ensure that investors, creditors and other stakeholders are well-protected and informed about the going concern risks; and sustain an environment in which directors recognise, acknowledge and respond to economic and financial distress sooner rather than later.'
The industry welcomed the opportunity to debate the issues, but there were reservations about some of the proposals.
KPMG head of audit Tony Cates said: 'Where I am sure that there will be intense debate, is over what seems to be the high hurdle set by the FRC for a company to conclude, as part of its report, that it is a going concern.
'A company needs to be able to say that there is high confidence that, over the general economic cycle - the length of which may be open to debate but is potentially a long timescale - it will be able to sustain its business model, strategy and operations and remain solvent. My concern is that it will be difficult for many companies to meet what appears to be such a tough test.'
The consultation paper is available from FRC. The closing date is 28 April 2013.