The Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance, has published an Exposure Draft of updated guidance for directors of UK companies to assist them with their assessment of going concern and in evaluating the nature and extent of disclosures.

The Draft will replace the existing guidance for directors of listed companies that was published in 1994. It is designed to be relevant to the directors of all sizes of UK companies including those that adopt the Financial Reporting Standard for Smaller Entities. The Draft incorporates the going concern material published in recent months in the FRC’s “Update for directors” and “Guidance for directors of smaller companies”. However, it will not replace that guidance until published in final form, taking account of the comments received.

Commenting on the Draft, Paul Boyle, Chief Executive of the FRC, said:

 “The guidance that the FRC has issued over the last year has been well received and the Exposure Draft gives us the opportunity to bring together all of the latest thinking in a single place to help directors all of sizes of UK companies. We hope that the four principles will be particularly helpful. ”

The FRC has received additional questions in recent weeks about the review period and disclosures related to half-year financial statements. The Draft sets out the FRC’s understanding of the existing obligations on directors arising from Company Law, the Listing Rules, UK Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) in relation to half-year financial statements and proposes that the going concern review period should be at least, but not limited to, twelve months from the date of approval for all annual and interim financial statements of UK companies intended to give a true and fair view, whether using UK GAAP or IFRS. This minimum period is currently required by UK GAAP. However, it is a slightly longer period than that specified by IFRS where the review period must be at least, but not limited to, twelve months from the balance sheet date.

Commenting on the challenge of assessing going concern for half-year financial statements of listed companies, Ian Wright, Director of Corporate Reporting of the FRC, said:

“The extent of the procedures will depend on facts and circumstances, with more diligence applied where the forecast headroom against funding facilities is low. Directors of UK listed companies need to consider whether they should make additional disclosures in their half-yearly financial statements, particularly where the facts and circumstances have changed since the last year end.”

The comment deadline is 28 August 2009 and the FRC is consulting on whether the final guidance can reasonably be implemented in time for 31 December 2009 year ends.  

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. The revised guidance would apply for all financial statements of UK companies intended to give a true and fair view. It would apply to half-yearly financial statements produced by UK listed companies applying UK GAAP or IFRS, but not to interim management statements.
3. All press enquiries should be addressed to Jon Hooper, Head of Communications, telephone: 020 7492 2344 or email: j.hooper@frc.org.uk or to Ian Wright, Director of Corporate Reporting on 020 7492 2330.