The Sharman Inquiry


In June 2012, the United Kingdom Sharman Panel of Inquiry, established at the invitation of the Financial Reporting Council (FRC) to consider going concern and liquidity risks, published its final report and recommendations.

The Panel was commissioned in March 2011 to identify lessons from the financial crisis and recessionary environment for companies and auditors regarding going concern and liquidity risks and to recommend measures necessary to improve the existing reporting regime and related guidance in relation to these matters.

The report published in June 2012 called for "a common international understanding of the purposes of the going concern assessment and financial statement disclosures about going concern, and of the related thresholds and descriptions of a going concern" as the inquiry had raised questions about the quality of information provided on companies’ financial health and their ability to withstand economic and financial stresses in the short, medium and longer term.

Disclosure requirements about an assessment of going concern are a topic of much international debate and are currently also discussed by the IFRS Interpretations Committee

Project milestones

In January 2013, the FRC consulted on how best to implement Lord Sharman's proposals on going concern. The FRC was pleased that the majority of respondents supported the principles behind the recommendations advocated by Lord Sharman’s report, “Going Concern and Liquidity Risks: Lessons For Companies and Auditors”.

In November 2013 the FRC issued further proposals, including revised guidance for implementing the Sharman recommendations ("the revised guidance").  The revised guidance sought to integrate the FRC's existing guidance on going concern and risk management and internal control, replacing ‘Internal Control: Guidance for Directors’ (2005) and ‘Going Concern and Liquidity Risk: Guidance for Directors’ (2009) (both links to FRC website). Along with changes to the UK Corporate Governance Code, it was proposed to be applicable for periods commencing on or after 1 October 2014.  Proposed supplementary guidance for banks was also issued.

The FRC issued a further consultation on certain extracts from the revised guidance in April 2014.  These extracts reflected comments the FRC received in response to its previous consultation.

Proposals for non-code companies

In October 2015, the FRC issued an Exposure Draft of best practice guidance on the going concern basis of accounting and reporting on solvency and liquidity risks for companies that do not apply the UK Corporate Governance Code.  

Current status of the project  

In September 2014 the FRC published the finalised Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (link to FRC website), alongside an updated version of the Code.  As proposed, this revised guidance is applicable for periods commencing on or after 1 October 2014.

Guidance for non-code companies

For those companies not applying the UK Corporate Governance Code, the FRC, in April 2016, issued non-mandatory guidance on the going concern basis of accounting and reporting on solvency and liquidity risks.  Small and micro companies have been scoped out of the guidance but may find parts of it to be a useful in making their going concern assessment. 

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