Going Concern

With the increasing profile of 'going concern' in the current economic crisis, the Financial Reporting Council (FRC) has been working to update the Going Concern Guidance for Directors of Listed Companies (1994).

In October 2008, the FRC consulted on revising the guidance, proposing to add another basic conclusions directors can reach on going concern - 'they have identified material uncertainties that may cast significant doubt about the ability of the company to continue as a going concern and so additional disclosures are required by IFRSs'. The QCA responsed that this new conclusion confused more than clarified the options. Click here to read the response in full.

In May 2008, the FRC published a Exposure Draft - Going Concern and Liquidity Risk: Guidance for Directors of UK Companies, which scraps the proposal of a fourth conclusion. The new draft varies greatly from the 1994 guidance, taking a principles-based approach and including appendices that provide going concern statement examples and questions for directors to ask when assessing going concern.

The QCA suggests that all directors familiarise themselves with the new draft guidance, so as to be fully aware of all aspects they should be considering when it comes time to determine the going concern status in financial reports. Click here to download the document from the FRC's website.

The FRC also published other documents on going concern for companies with December 2008 year ends, which could be useful more generally for companies facing going concern conclusions. These include:

• An update for directors of listed companies; going concern and liquidity risk brings together the requirements on directors to comment on going concern and liquidity risk in annual reports and accounts.
• Study into going concern and liquidity risk has identified that more can be done to improve financial instruments disclosures under IFRS 7.
• Challenges for audit committees arising from current economic conditions aims to assist audit committees by identifying key questions that they may need to consider when preparing for December 2008 year end annual reports and accounts.

These documents are all available in full on the FRC's website, please click here.