Governance in brief — FRC consults on new, integrated guidance on risk management, internal control and going concern

Published on: 20 Nov, 2013

This publication from Deloitte discusses the proposals from the Financial Reporting Council (FRC) to replace their existing ‘Internal Control: Guidance for Directors’ (2005) and ‘Going Concern and Liquidity Risk: Guidance for Directors’ (2009) with one set of integrated guidance which will also reflect their 2012 ‘Boards and Risk’ paper (links to FRC website).  This will implement the Sharman principles on going concern (link to FRC website), taking on board feedback from their January 2013 consultation. Boards will have one broad 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 and enhance reporting on internal control.

The main areas affecting going concern are:

  • Proposed replacement of the front half statement that the business is a going concern with a requirement that the board performs a robust assessment of the principal solvency and liquidity risks facing the company. This assessment should form part of the broader risk management assessment, identifying which (if any) of those risks represents a material uncertainty in relation to the company’s ability to continue to adopt the going concern basis of accounting.
  • Existing financial reporting requirements in respect of the going concern basis of accounting remain – the directors must determine whether it is appropriate to adopt the going concern basis and to disclose this together with any material uncertainties in the financial statements.

The main areas affecting risk management and internal control are:

  • UK Corporate Governance Code will require board to monitor risk management and internal control on an on-going basis, replacing existing duty to review “at least annually”.
  • Revised duty supported by much greater guidance for boards on risk management processes.
  • Encourages more comprehensive disclosure of principal risks, risk management and internal control.
  • Introduces a new disclosure requirement to explain actions taken by the board to remedy any significant failings or weaknesses identified.
  • Proposes new reporting requirements for auditors on risk management and internal control.
  • Supplemental guidance (link to FRC website) proposed for directors of banks on solvency and liquidity.


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