In January the FRC consulted on how best to implement Lord Sharman's proposals on going concern. The FRC is pleased with the considered responses/feedback to its recent Consultation Paper Implementing the Recommendations of the Sharman Panel – Revised Guidance on Going Concern and revised International Standards on Auditing (UK and Ireland).
The majority of respondents supported the principles behind the recommendations advocated by Lord Sharman’s report, “Going Concern and Liquidity Risks: Lessons For Companies and Auditors”
. The FRC therefore encourages all companies to consider and abide by the principles.
In terms of the development of guidance in support of the principles the FRC has decided to take up a number of proposals and will:
Issue separate, simplified guidance for SMEs. As was anticipated in the consultation questions, feedback has been that recommendations for SMEs could be more proportionate.
Make a clearer distinction as to the meaning of going concern in the context meant by the Sharman panel. The feedback highlighted that the use of going concern to describe both the specific assessment required when preparing the financial statements, and the broader assessment of the risks affecting a company’s viability, was confusing. The FRC will consult on whether changes to the UK Corporate Governance Code are needed to make the distinction clearer; if so, they will take effect in October 2014.
Make a clearer link between the assessment of business viability risks and the broader risk assessment that should form part of a company’s normal risk management and reporting processes. FRC will consider this in the development of the Code and related guidance on risk management and internal control.
Melanie McLaren, Executive Director Codes & Standards said:
“We believe going concern guidance information is crucial for all investors and are pleased respondents confirmed this in principle. We have listened to all the views expressed on the details of our proposals and are now able to prepare more appropriate proposals for all businesses large and small. ”
The FRC expects to issue further consultation documents in the Autumn covering SMEs, proposed changes to the Code, and integrated going concern and risk management Code guidance.
Notes to editors:
The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
Sharman panel final report can be found here. FRC consultation on Sharman can be found here.
Response letters to the Sharman consultation are available here.
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