FRC Thematic Review Findings on Viability and Going Concern

Background

The impact of the Covid-19 pandemic over the past 18 months has presented a significant challenge for businesses across all sectors, creating significant uncertainty across the economy. Whilst entities applying the Corporate Governance Code include a viability statement in their financial reporting, all companies, to a greater or lesser extent, need to make some reference to their assessment of going concern and the factors which have informed their decisions on the basis of preparing their financial statements.

Here, we look at how key themes from the FRC review can improve going concern disclosures in all companies.

Good practice

The report identifies areas of good practice including:

• Sufficient detail to enable the reader to be clear on the circumstances which could result in company failure.
• Consideration of going concern assessment periods longer than the minimum 12 months, with an explanation of why a longer period had been considered.
• Good disclosures relating to government support that clearly identified which forms of support had been accessed historically; explained which forms were expected to be accessed in the future; highlighted assumptions made in respect of the support that may be available; and explained the timing and duration of support assumed.
• Highlighting material uncertainties in relation to going concern clearly and understandably, whilst being clear that the going concern basis had been applied.

Areas for improvement

In some financial statements reviewed, the going concern assessment period was not clearly identified or the related information throughout the accounts was inconsistent. The FRC encourages the presentation of going concern disclosures which provide reasons for the period assessed and considers that it may be helpful to users of the accounts if the period is extended beyond the minimum.

Some companies failed to link any matters associated with liquidity disclosed as post balance sheet events with their going concern assessment. The expectation is that such matters should be discussed explicitly or cross-referenced within the going concern disclosures.

In several cases, narrative in the reporting suggested that there were material uncertainties in relation to going concern or significant judgement applied in the going concern assessment, but which had not been fully addressed in the going concern disclosures.

How we can help

Our accounting update courses reflect on this feedback and what we can learn for going concern disclosures in all financial statements, not just those caught by the PIE requirements.

If you would like us to review these disclosures in your clients’ financial statements then this is a service we perform. In addition, our hot and cold file audit quality reviews also include a review of the financial statements.