The Financial Reporting Council (FRC), the United Kingdom’s independent regulator responsible for promoting confidence in corporate reporting and governance, has published updated Guidance for directors of UK companies to assist them when making their assessment of going concern. The Guidance is based on three principles covering the process which directors should follow when assessing going concern, the period covered by the assessment and the disclosures on going concern and liquidity risk. The Guidance emphasises the importance of balanced, proportionate and clear disclosures about going concern issues and the key assumptions being made in one place in an annual report.

The Guidance takes into account feedback received from market participants in response to a series of documents published by the FRC in the last twelve months including an Exposure Draft. Commentators expressed strong support for both the principles based approach and the implementation date of 31 December 2009.

The Guidance is designed to be relevant to the annual going concern assessment that must be carried out by directors of all UK companies including those that apply the Financial Reporting Standard for Smaller Entities. For companies that are admitted to trading on a regulated market the Guidance will apply to both their annual and half-yearly financial statements.

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

“We are grateful for the support for our efforts relating to going concern, both in the UK and further afield. The updated Guidance should be helpful to directors of all sizes of UK companies in the current difficult economic conditions and in more settled times”.

A number of commentators on the Exposure Draft remarked on continuing inconsistencies between the going concern requirements of IFRS, UK GAAP and Auditing Standards and on the need for IFRS to contain more guidance on going concern.

Ian Wright, Director of Corporate Reporting of the FRC, said:

“The Guidance reduces significantly inconsistencies between UK practice and IFRS, but some differences remain. The FRC has written to the International Accounting Standards Board to encourage them to incorporate the new principles and guidance into IAS 1: Presentation of financial statements when it is next reviewed and to converge on the requirement for the directors’ going concern review to cover at least one year from the date of approval of financial statements.”

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. With effect from 31 December 2009 the Guidance, which can be downloaded from http://www.frc.org.uk/publications/pub2140.html, will replace the Guidance for Directors of Listed Companies that was published in 1994. It will result in the withdrawal of the interim guidance issued in 2008 and 2009 in the form of the Update for Directors of Listed Companies and the Guidance for Directors of Smaller Companies.
3. The Guidance does not apply to interim management statements required by Disclosure and Transparency Rule 4.3.
4. The FRC has produced a number of documents leading up to this Guidance. In September 2008 the FRC published a consultation paper to ascertain whether the 1994 guidance needed to be amended in the short term and in May 2009 the FRC published its exposure draft. Concurrent with the publication of this Guidance the FRC has published a feedback statement on the Exposure Draft. These documents together with the comment letters we received are available from the FRC’s website at www.frc.org.uk/corporate/goingconcern.cfm
5. All press enquiries should be addressed to Jon Hooper, Head of Communications, telephone: 020 7492 2344 or email: jhooper@frc.org.uk or to Ian Wright, Director of Corporate Reporting on 020 7492 2330.