Going Concern
The Financial Reporting Council (FRC) publishes guidance for directors on going concern assessment and disclosure together with related material for auditors.
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. This guidance replaced 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 the following disclosures in the annual report:
- Going Concern: In annual and half-yearly financial statements, the board 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 30); and
- Longer-term viability: Taking account of the company’s current position and principal risks, the board should explain in the annual report how it has assessed the prospects of the company, over what period it has done so and why it considers that period to be appropriate. The board 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 31).
In May 2023 the FRC launched a consultation on changes to the Code. Proposals included streamlining the requirements for the longer-term viability statement. The FRC has stated that its intention is to issue an updated Code in January 2024. In November 2023, the FRC issued a policy update on updates to the Code in light of the Government's withdrawal of proposed secondary legislation laid in July covering the Audit & Assurance Policy, the Resilience Statement, the Material Fraud Statement and enhanced reporting on distributions. The FRC confirmed that updates to the Code would still go ahead but indicated that a number of the original proposals would not be taken forwards.
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. The 2016 Guidance brings together the requirements of company law, accounting standards, auditing standards, other regulation and existing FRC guidance relating to reporting on the going concern basis of accounting and solvency and liquidity risks. It provides application guidance in addition to including principles for best practice and practical examples.
Small and micro companies have been scoped out of the guidance but may find parts of it to be useful in making their going concern assessment.
