The Financial Reporting Council (FRC) has issued updated guidance to help companies demonstrate the assessments underlying their going concern conclusions and encourage directors to take a broader view, over a longer term, of the risks and uncertainties they face.

Non-mandatory guidance on the ‘Going Concern Basis of Accounting and Related Reporting, including Solvency and Liquidity Risks’ brings together the requirements of company law, accounting standards, auditing standards, listing rules, the UK Corporate Governance Code and other relevant regulation into one convenient place for those preparing reports.

Aimed at all UK companies except small companies and micro-entities, it serves as a practical guide to help them prepare high-quality, company-specific disclosures about their going concern conclusions. Clarity around how these disclosures are reached promotes investor and end-user confidence, and enables these companies to access capital and support UK economic growth, the regulator says.

Proportionate guidance

The FRC’s Executive Director of Regulatory Standards, Mark Babington, says: “The FRC is focused on delivering proportionate guidance on both the production and usability of high-quality reporting, as it looks to support businesses’ access to capital and their contribution to UK economic growth. I encourage companies to make the most of this guidance to provide investors and other stakeholders with clear and coherent going concern disclosures.”

Guidance on going concern was last issued in 2016. The scope of this updated guidance includes companies that apply the UK Corporate Governance Code. It also reflects changes in accounting and auditing standards and provides additional guidance on overarching disclosure requirements that may apply. 

In an explainer document to accompany the guidance, the FRC says it encourages directors to take a broader view, over a longer term, of the risks and uncertainties they face. The level of analysis applied depends on a company’s size, complexity and circumstances, and the information disclosed should be proportionate to the uncertainties to which the company is exposed – and to its financial and liquidity position, the regulator says. 

Additional disclosures

Accounting standards require directors to assess the appropriateness of adopting the going concern basis when preparing financial statements and consider any material uncertainties to be disclosed in the financial statements, taking into account all available information about the company’s future. The guidance urges directors to think about whether additional disclosures may be necessary, including disclosures about any significant judgements made and to provide a true and fair view. 

Companies must disclose principal risks and uncertainties in their strategic reports, which may include solvency and liquidity risks. The guidance reminds directors to consider both financial and non-financial factors that could impact the company’s operations and financial health and evaluate their likelihood and potential impact. 

Kate Beeston, Technical Manager, Corporate Reporting at ICAEW, says: “We welcome the publication of the FRC’s updated going concern guidance; an area of reporting that often comes under scrutiny from investors, regulators and other stakeholders. Specifically, we’re pleased the update has resulted in a single source of guidance on the topic for UK companies.

“Bringing guidance on the requirements for both Code and non-Code companies together into a single document is a helpful improvement on the 2016 guidance. We expect the updated guide will prove a valuable resource for directors, company advisers and auditors, and should serve as an effective tool to help increase the quality of reporting in the annual report.”