UK reporting on ‘going concern’ taking risk into account

Recent developments in corporate governance policies and practices

Since the third edition of Tricker – Corporate Governance: Principles, Policies, and Practices published in February 2015, the subject has continued to evolve in regulation, policy, and practice. Some of the more significant developments include:

UK reporting on ‘going concern’ taking risk into account
Following the global financial crisis, the UK’s Sharman Report called for companies to give greater clarity to assurances that their company was a ‘going concern’, by identifying liquidity and solvency issues existing in potential long-term risks. In September 2014, the FRC updated the UK corporate governance code to take account of these recommendations, and issued guidance information. See www.frc.org.uk/getattachment/591a5e2a-35d7-4470-a46c-30c0d8ca2a14/Sharman-Inquiry-Final-Report.aspx and www.frc.org.uk/Our-Work/Codes-Standards/Corporate-governance.aspx

The code now calls for companies to monitor risk management and internal controls and, at least annually, to carry out a review of their effectiveness, and further to report on that review in the annual report. Since boards are unlikely to want to report on their exposure to risk, it is likely that external auditors will include such reviews in their audit programmes.

However, these changes applied only to companies coved by the code. In October 2015, the FRC issued a further consultation paper for all companies, including those not covered by the corporate governance code, on the assessment and reporting of the ‘going concern’ basis of accounting, taking solvency and liquidity risks into account (3E, p194 onwards).

Bob Tricker, January 2016

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