The FRC has warned companies to be ready for the heightened demands of ‘going
concern’ assessments in the current financial storm.
Some companies might have to drop the going concern basis of accounting
‘The difficult economic conditions being faced by many companies will
necessitate careful consideration by directors when assessing whether it is
reasonable for them to use the going concern basis of accounting, and whether
adequate disclosure has been given of going concern risks and other
uncertainties,’the FRC said.
Companies will still be able to get a clean bill of health from their
auditors if they do decide the going concern basis is not appropriate, as long
adequate disclosures are made.
The regulator rolled out an extensive guide for companies which said that the
current economic conditions provide particular challenges for companies in
preparing their reports.
Companies may have to spend more time reviewing key assumptions and models as
going concern assessments will be ‘particularly sensitive’ this year.
‘One consequence is expected to be an increase in the disclosures in annual
reports and accounts about going concern and liquidity risk,’ the FRC said. ‘The
current conditions will present challenges for all of the parties involved.’
The FRC said that directors would need to ensure that they prepare thoroughly
for their assessment of going concern and made appropriate disclosures.
Auditors would also need to ensure that they fully consider going concern
assessments and only refer to going concern in their audit reports ‘when
‘Addressing these challenges well before the preparation of annual
reports and accounts may help avoid a last minute problem that might unsettle
investors and lenders unnecessarily,’ the FRC added.
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