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FRC publishes review findings on viability and going concern disclosures

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23 Sep 2021

The Financial Reporting Council (FRC) has published the findings of its review of companies’ viability and going concern disclosures. The report aims to provide useful guidance for preparers of annual accounts by identifying areas where viability and going concern disclosures could be improved, and by providing examples of better practice disclosures.

Although the FRC did identify some examples of good disclosure it’s overall conclusion is that there is still significant scope for improvement.

In preparing their upcoming annual reports, the FRC expects companies to prepare viability and going concern disclosures which:

  • Include sufficient company-specific qualitative and quantitative information to enable a reader to fully understand the assessment made. Such disclosures might usefully include; details of drawn and undrawn facilities in place and reliance upon such facilities; explanation of any reliance on any government support programmes; details of covenants including headroom; and information on post balance sheet changes to liquidity.
  • Are proportionate to the uncertainties to which the company is exposed and to its financial position.
  • Are based on assumptions which are clearly consistent with those used in other forward-looking areas of the financial statements such as impairment testing and the assessment of the recoverability of deferred tax assets.
  • Clearly explain the inputs and assumptions used in forecast scenarios (providing quantitative as well as qualitative information).
  • Explain the sensitivity analysis, stress and reverse stress tests carried out to support the assessment and provide details of the inputs (quantitative as well as qualitative detail) and outcomes of any such analysis.
  • Disclose information on how they are resilient to risks which could threaten either their going concern status or longer-term viability including how they are resilient to principal risks and how the impact of such risks could be mitigated if they were to crystallise.

In addition to setting out its expectations of what better practice viability and going concern disclosures should contain, the FRC also provides its expectations with respect to each statement. It expects:

Viability statements to:

  • Clearly justify the period of assessment taking into account, for example, debt repayment profiles, the nature of the business and its stage of development, planning and investment periods, strategy and business model and capital investment.
  • Provide longer-term information and extend their period of assessment beyond the common period of three years.  
  • Draw attention to any assumptions or qualifications on which the assessment is dependent.
  • Clearly map principal risks considered to the viability scenarios tested.

Going concern disclosures to:

  • Clearly identify any material uncertainties related to events or conditions which may cast significant doubt on an entity’s ability to continue as a going concern.
  • Highlight the company-specific significant judgements made by management in determining whether or not the adoption of the going concern basis is appropriate and whether or not there are material uncertainties in respect of going concern to disclose.

A press release and the full report is available on the FRC website.  A webinar to discuss the report will be held on October 20.  A press release including details of how to register for the webinar is available on the FRC website

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