UK: Viability Statement Requirement For UK Listed Companies

Last Updated: 1 March 2016
Article by Azaria Murray

An increased focus on risk management means that all UK listed companies are now required by the Listing Rules to include a viability statement in their annual report.

An increased focus on risk management, has led to a new provision covering the viability statement, to be added to the FCA's UK Corporate Governance Code.

The new provision C.2.2 states:

Taking account of the company's current position and principal risks, the directors should explain in the annual report how they have assessed the prospects of the company, over what period they have done so and why they consider that period to be appropriate. The directors should state whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, drawing attention to any qualifications or assumptions as necessary.

Time period

The viability statement is separate to the existing going concern statement and should cover a different time period. The going concern should cover at least 12 months from the date of approval of the financial statements, whereas the viability statement should look forward significantly longer than 12 months.

Directors must select the time period to be covered by the viability statement, and explain why they consider that period to be appropriate in the annual report. Recent early disclosures cover a five year period, although this will vary between types of company. The time period covered should be based on the commercial reality of the organisation, and it is suggested that the time period should link to the company's business planning period.

Content

The directors should state whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities, as they fall due over the period of their assessment, drawing attention to any qualifications or assumptions as necessary.

Companies are encouraged to provide meaningful disclosures within a holistic framework, by evaluating risks to the company's solvency and liquidity on a long-term basis.

The viability statement is supported by the board's review of effectiveness of systems. the company's risk appetite and culture. The board should also monitor the company's risk management and internal control systems, and address any failures/weakness in those areas. The viability statement should involve an assessment of the risks to the company's business model, future performance, solvency and liquidity, drawing on stress testing analysis using plausible scenarios.

Location

As the viability statement covers the principal risks and uncertainties of the company, it should be included within the strategic report and the disclosures should link to the overall strategy of the company.

Practical considerations

  • Determining the period to cover
  • Consideration of appropriate stress testing
  • Identifying relevant qualifications and assumptions
  • Robust assessment of principal risks.

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.

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