FRC proposes new guidance to enhance reporting on risks and the going concern basis of accounting

News types: Guidance

Published: 15 October 2015

PN 58/15

The Financial Reporting Council (FRC) has issued for consultation draft guidance on the assessment of and reporting on the going concern basis of accounting and solvency and liquidity risks - ED: Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risk. This should enhance the quality and depth of information investors receive about  the business over the longer-term.

In September 2014, the FRC updated the UK Corporate Governance Code (“the Code”) in response to the recommendations of the Sharman Inquiry on going concern and liquidity risks.  The FRC issued related guidance for companies applying the Code, noting that it would issue guidance for non-Code companies in due course. This draft guidance is best practice for those companies.   

The guidance is intended to assist directors in applying the relevant requirements in accounting standards and company law, incorporating recent regulatory developments such as the introduction of new UK and Ireland GAAP and the Strategic Report.

Melanie McLaren, Executive Director of Codes and Standards said:

“The Sharman Inquiry highlighted the need for clarity by all companies on the going concern basis of accounting. It identified the need to consider liquidity and solvency when analysing the principal risks a company faces and the need to take a broader longer-term view.  This guidance is intended to be practical and aims to assist directors in meeting their legal responsibilities in a proportionate and effective manner, whilst reflecting the de-regulatory nature of developments in corporate reporting for smaller companies”


Comments and feedback on the FRC’s discussion paper are invited by 15 January 2016.

Notes to editors:

  1. 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.

  2. In all cases, the guidance encourages the use of assessment techniques and the provision of disclosures proportionate to the size and complexity of the company; it is ultimately a matter of judgement for directors to determine how much is necessary for them to meet their legal responsibilities.

  3. The guidance is not directed at small and micro companies as these are not required to prepare a Strategic Report.  However, they may find it useful when assessing the use of the going concern basis of accounting and, in respect of small companies, when considering if any additional disclosures are necessary for the financial statements to give a true and fair view.  Although directed primarily at companies, the guidance may also be useful in preparing the annual report of other entities.

  4. The guidance will, when finalised, replace the FRC ’s ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’ and ‘An Update for Directors of Companies that Adopt the Financial Reporting Standard for Smaller Entities (FRSSE): Going Concern and Financial Reporting’.

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