FRC announces Inquiry into Going Concern Assessments

News types: Inspection

Published: 8 March 2011

FRC PN 324
The FRC today announces the launch of an Inquiry to identify lessons for companies and auditors addressing going concern and liquidity risks. The Inquiry will draw on the experience of companies and auditors who have had to address these issues in times of difficulty, including during the credit crisis. The Panel of Inquiry will recommend measures, if any, which are necessary to improve the existing reporting regime and related guidance for companies and auditors in relation to these matters.

The Panel of Inquiry will be led by Lord Sharman of Redlynch, and will additionally include David Pitt-Watson and Roger Marshall (see Note 2).

Announcing the Inquiry, FRC Chairman Baroness Hogg said:

“Two years ago, at the height of the credit crisis, we looked into and provided guidance on addressing the exceptional risks to going concern and liquidity facing companies, which was updated after extensive stakeholder consultation in November 2009. This met the immediate need for guidance at a time when bank lending to companies was being dramatically curtailed. Although credit markets have since stabilised, going concern and liquidity risk continue to be critical corporate reporting and audit issues. In launching this inquiry, our aim is to ensure the lessons of the recent past are captured, our guidance developed as necessary and best practice in dealing with a range of related issues shared widely.”


Lord Sharman said:

“I am pleased to have been asked to lead this important Inquiry. The quality of the information companies provide about their financial health and their ability to withstand the stresses they face in the short to medium term underpin market confidence.

The Panel of Inquiry looks forward to receiving input, through written submissions and discussions, from a wide range of interested parties including executive and non-executive directors and members of audit committees, the auditing profession, representatives of shareholders and other providers of capital, regulators and others. We expect to issue a call for evidence in the near future.”


The Inquiry will in part help to inform the debate that the FRC is seeking to promote through its discussion paper (see Note 3): 'Effective Company Stewardship – Enhancing Corporate Reporting and Audit', which recommends that:

Directors should describe in more detail the steps that they take to ensure the reliability of the information on which the management of a company, and therefore directors’ stewardship of the company, is based, and

Audit Committees should explain how they discharged their responsibilities for the integrity of the Annual Report

The Inquiry’s detailed terms of reference are:

“In the context of the recommendations in the FRC’s recently published discussion paper 'Effective Company Stewardship – Enhancing Corporate Reporting and Audit' to examine the particular challenges faced by directors, management and auditors where companies face going concern and liquidity risks and to consider how such challenges should be addressed in the future. In particular, the Panel of Inquiry will examine:
  • how companies ensure the adequacy, timeliness and reliability of the internal information used to monitor going concern and liquidity risks;
  • how the Board and, separately, the Audit Committee approach going concern and liquidity risks, particularly in situations where these issues are of heightened importance,
  • how the consideration of going concern and liquidity risk can best be incorporated into other aspects of stewardship and reporting,
  • how auditors approach these matters, and
  • whether the existing reporting regime and related guidance should be developed. In this regard, particular consideration will be given to whether:
  • the FRC Guidance for Directors of UK Companies, 2009 addressed the needs of management and Boards of companies facing going concern and liquidity risks;
  • the guidance contained in International Standard on Auditing (UK and Ireland) 570 - Going Concern should be developed in the light of lessons learned in the course of the credit crisis; and
  • the going concern and liquidity risk disclosures required by IFRS, the Code and the Listing Rules provided timely and relevant information for all stakeholders.”

The Panel of Inquiry is expected to provide its preliminary conclusions in the summer and final recommendations by the end of the year. The FRC will consider the recommendations of the Panel of Inquiry in conjunction with its consideration of responses to its paper 'Effective Corporate Stewardship'.

Notes to Editors
  1. The Financial Reporting Council is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment.
  2. Further information about members of the Panel of Inquiry.
Lord (Colin) Sharman is Chairman of Aviva plc, and a Non-executive Director of BG Group plc and Reed Elsevier plc. He joined the KPMG partnership in 1966, and held a number of senior UK and international positions, including Chairman of KPMG Management Consulting world-wide from 1991 to 1994, UK senior partner from 1994 and Chairman of KPMG International from 1997. He retired as international chairman and from the KPMG partnership in 1999. In October 1999 he was sworn into the House of Lords. He was the Liberal Democrat Spokesperson for Trade and Industry/Business, Enterprise and Regulatory Reform from 2001 to 2010. In February 2002, he completed a study of Central Government Audit and Accountability commissioned by the chief secretary to The Treasury.

David Pitt-Watson is the Chair of Hermes Focus Funds, and former CEO of all Hermes Shareholder Stewardship activities. These are the largest shareholder stewardship programme of any fund manager in the world. Between 1997 and 1999, he was Finance Director of the Labour Party and he has advised leading politicians on issues of industrial policy and corporate governance for over 20 years. He is a Fellow of the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) and leads the RSA’s Tomorrow’s Investor project. He is a trustee and Treasurer-designate of Oxfam UK.

Roger Marshall is the Interim Chairman of the FRC’s Accounting Standards Board. He spent much of his career in PricewaterhouseCoopers, where he was an audit partner in London and Zurich and led the audits of a number of FTSE and other large multinational audits. Roger chaired PwC’s Global Audit Policy Board in 2003-2007 and its global Corporate Reporting Task Force in 2008-2009. He left PwC in 2009 and now serves on several Boards and committees including Old Mutual plc where he is Chair of the Audit Committee. Roger served two terms on the ASB between 2001 and 2007 and after that became a member of the Committee for Accounting for Public Benefit Entities.

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