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We comment on the FRC consultation on risk management, internal control and the going concern basis of accounting.

  • Deloitte Response to FRC Risk Management Internal Control Image

11 Feb 2014

We have published our comment letter on the Financial Reporting Council’s (FRC’s) consultation ‘Risk management, internal control and the going concern basis of accounting: Consultation on draft guidance to the directors of companies applying the UK Corporate Governance Code and associated changes to the code’ (“the draft guidance”). Overall we support the FRC’s proposed changes to the UK Corporate Governance Code and the associated guidance, highlighting that we believe that “these changes represent existing good practice in risk management and internal control”.

The draft guidance, published in November 2013, seeks to integrate the FRC current guidance on going concern and risk management and internal control (often referred to as the “Turnbull Guidance”) and also makes some consequential revisions to the UK Corporate Governance Code and auditing standards.  The FRC has taken this approach “to encourage boards, as part of the same on-going process, to consider risk identification and management, including the assessment of solvency and liquidity risks, and to determine whether the company is able to adopt the going concern basis of accounting”.  

The draft guidance also seeks to support the principles underlying the recommendations advocated by Lord Sharman in his report “Going Concern and Liquidity Risks: Lessons For Companies and Auditors” (link to FRC website). 

We comment:

We welcome the principles behind the consultation as:

improving the quality of risk management and internal control of companies applying the UK Corporate Governance Code (“the Code”); and

enhancing the communication between those companies and their shareholders on the company’s approach to risk management, internal control and going concern.

We also believe that “in most cases companies should be seeking to meet these standards as a matter of good business practice rather than as a purely regulatory compliance exercise” and that there may be additional costs for smaller listed companies.

Further comments and full responses to all questions raised in the invitation to comment are contained within the full comment letter (including our responses to the separate Consultation Paper: 'Guidance for Directors of Banks on Solvency and Liquidity Risk Management and the Going Concern Basis of Accounting' and the Exposure Draft: 'Revised Auditing Standards (extracts) ISAs (UK and Ireland) 260, 570, 700') issued concurrently by the FRC.

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