Going concerns
29 Jun 09
A new FRC exposure draft has brought together the latest thinking on assessment of going concern and evaluating the scope of disclosures
The Financial Reporting Council 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 any comments received.
The FRC guidance states:
• directors need to ensure that they prepare thoroughly for their assessment of going concern and make appropriate disclosures
• auditors need to ensure that they fully consider going concern assessments and refer to going concern in their auditor’s reports only when appropriate
• investors and lenders need to be prepared to read and evaluate all of the relevant information in annual reports and financial statements before reacting.
Paul Boyle, chief executive of the FRC, said: “The exposure draft brings together all of the latest thinking in a single place to help directors of all UK companies. ”
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, 12 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 twelve months from the balance sheet date.
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. n