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Going Concern

The Financial Reporting Council (FRC) publishes guidance for directors on going concern assessment and disclosure together with related material for auditors.

Their work started in 1994 when the first corporate governance code requirement for a going concern statement was introduced. The 1994 guidance provided directors of listed companies with guidance on performing their assessment.  In October 2009, the Financial Reporting Council (FRC) published Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009 ('the 2009 Guidance'). 

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.  A report was published in June 2012 which recommended five areas of activity for the FRC to take forward.

The September 2014 Guidance

In September 2014, following a number of consultations, the FRC published Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (link to FRC website), alongside an updated version of the Code.  The guidance is applicable for periods commencing on or after 1 October 2014.  This guidance replaces the 2009 Guidance Going Concern and Liquidity Risk: Guidance for Directors of UK Companies.  The 2014 guidance is primarily directed at companies applying the UK Corporate Governance Code. 

Boards of those companies applying the UK Corporate Governance Code need to provide two statements as follows:

1)     In annual and half-yearly financial statements, the directors should state whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and identify any material uncertainties to the company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements (Code Provision C.1.3); and

2)     The directors should state whether, taking account of the company’s current position and principal risks, they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, drawing attention to any qualifications or assumptions as necessary (Code Provision C.2.2).  

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. 

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.