Going concern guidance extended to companies outside of UK governance rules

COMPANIES outside of UK corporate governance rules will be given guidance around the reporting of risks and the going concern basis of accounting, the FRC has confirmed.

Last year, the FRC introduced going concern rules that require directors to give shareholders a more detailed account of the potential risks facing their businesses.

Under the rules, enshrined within the UK Corporate Governance Code in response to the recommendations of the Sharman Inquiry on going concern and liquidity risks, boards must include a ‘viability statement’ in the strategic report to investors as part of wider changes to the code intended to improve the quality of information investors receive about the long-term health and strategy of listed companies.

The UK reporting watchdog has now issued for consultation draft going concern guidance for companies outside of the code. 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.

Melanie McLaren [pictured], 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”

Comments and feedback on the FRC’s discussion paper are invited by 15 January 2016.