In response to the current financial situation, the Financial Reporting Council (FRC) has published the following documents:
- An analysis of some of the challenges for audit committees arising from current economic conditions and some suggested questions that audit committees might need to address.
- An update for directors of listed companies on reporting on going concern and liquidity risk.
The purpose of the documents is to assist directors by identifying key questions that they may wish to consider when preparing for the year-end and in meeting their responsibilities in relation to annual reports and accounts. These documents do not impose any new requirements on companies or their auditors.
The FRC update on going concern brings together the key accounting requirements and the disclosures relevant to going concern and liquidity risk and sets out the main points of interaction between the judgments made by directors and auditors. The update highlights the challenges for all of the parties involved:
- Directors will need to ensure that they prepare thoroughly for their assessment of going concern and make appropriate disclosures.
- Auditors will need to ensure that they fully consider going concern assessments and only refer to going concern in their audit reports when appropriate.
- Investors and lenders will need to be prepared to read all of the relevant information in annual reports and accounts before making decisions.
The update also notes that the absence of confirmations of bank facilities does not of itself necessarily cast significant doubt on a company’s ability to continue as a going concern nor necessarily require auditors to refer to going concern in their reports.
The FRC has also published the results of a study of companies’ disclosures on going concern and liquidity risk, with conclusions and recommendations for improvements.
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