The Financial Reporting Council ("FRC") is revising its guidance on going concern.

Considering whether the going concern basis is appropriate in preparing financial statements involves reaching a reasoned conclusion based on the specific facts and circumstances affecting the company at the time the financial statements are approved (not the date to which they are prepared). It is acknowledged that the extent of procedures required for smaller companies is less than would be appropriate for larger more complex companies.

Within groups, the need for, and availability of, financial support from parents and other group companies (and therefore their financial position) will need to be taken into account by individual subsidiaries when assessing their own position.

Directors need to evaluate fully all the relevant facts and circumstances, but must do so in a balanced way to decide what disclosures, if any, are necessary. A specific example given is where a lender has a policy of not providing confirmation that borrowing facilities will continue to be available; a lack of confirmation would not automatically require any disclosure.

The going concern assessment is made at the time the financial statements are approved and does not give any certainty or guarantee as to future events. Once the accounts are approved there is no need to revisit going concern if, for example, a major customer becomes unexpectedly insolvent 2 months later.

Directors need to consider which factors are relevant to their company; the revised guidance expects at least a budget, trading estimate, cash flow forecast or other similar analysis to be prepared covering a period of at least 12 months from the date of approval of the accounts.

In addition, the revised guidance contains a list of specific areas which medium and large companies should consider (even if the directors conclude that they are not relevant to the company's circumstances) including

  • the company's market and its relative strength and market share;
  • the company's borrowing requirements;
  • the matching of cash inflows and outflows (including known off-balance sheet liabilities);
  • contingent liabilities; and
  • risk and risk management, such as exchange rate risks and counterparty risks arising from the failure of key suppliers or customers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.