March 6, 2025 New going concern guidance
Past performance is no guarantee of future results. That standard disclaimer, or words to that effect, can be found on investment publications across the globe. It’s a kind of ‘catch all’ phrase, designed to both remind investors of the potential risks of investing whilst encouraging them to undertake proper due diligence before making their investment.
However, the presence of a caveat emptor phrase does not absolve companies of the duty of care for their investors, customers and others. Good management practices, robust risk assessment and mitigation programmes, and going concern calculations help directors to ensure that they are meeting their legal obligations. With this in mind, the Financial Reporting Council (FRC) has issued updated guidance on “the going concern basis of accounting and related reporting.”
This guidance replaces the previous 2016 code and, the FRC says, has been designed for all UK companies with the exception of smaller companies and micro entities. However, for completeness the schedule of requirements and sources within the guidance also covers smaller entities. The FRC also stresses the guidance is not mandatory; rather it aims to provide a framework which will help directors to assess and make proportional going concern disclosures and to highlight areas of material uncertainty within their accounts. These will include both financial and non-financial factors which could affect company operations and solvency.
In line with other company reporting guidance, the FRC is keen to stress that going concern reporting should be both proportionate and appropriate to the individual entity. And whilst the guidance, which runs to fifty-two pages, aims to draw together the most pertinent aspects of the law, accounting standards, and corporate governance, the FRC stresses that it does not provide a comprehensive analysis of those requirements. So there will be occasions when directors will need to undertake further research in order to ensure that they are taking all material concerns into consideration.
Having said that, the going concern guidance does set out both requirements and best practice examples which are aimed at helping directors to provide a true and fair view of the going concern status of the organisation by:
- Identifying risks and uncertainties.
- Determining which of these are principal and therefore require disclosure.
- Considering whether it is appropriate to adopt a going concern basis of accounting
- Identifying material uncertainties.
- Considering whether directors should make additional disclosures in addition to those required explicitly by law, regulation, or accounting standards.
