FRC final guidance on the going concern basis of accounting and reporting on risks for companies that do not comply with the UK Corporate Governance Code (“Code”)

Following receipt of feedback on implementation of the recommendations of the Sharman Inquiry (see ‘Background’ below) the FRC has now published final guidance for companies on the going concern basis of accounting and reporting on risks. It applies to companies that are not required to comply with the Code.

The guidance (which is non-mandatory) sets out best practice for directors when considering the related requirements in: accounting standards which require disclosure in the financial statements on the going concern basis of accounting and material uncertainties; and company law which requires disclosure in the strategic report of principal risks and uncertainties, which may include risks that might impact solvency and liquidity. It:

  • encourages directors to take a broader view, over the longer term, of the risks and uncertainties that go beyond the specific requirements in accounting standards; and
  • acknowledges that companies will have risk management and control processes in place that will underpin the assessment and that the degree of formality of this process will depend on the size, complexity and the particular circumstances of the company.

Impact - the guidance summarises: relevant legal and regulatory requirements; principles for best practice; and key focus areas for directors to consider when making their assessments. Practical examples are included which are intended to be illustrative only. This guidance replaces the FRC’s previous guidance for non-Code companies on going concern and liquidity risk.

Background - in June 2012, the Panel of the Sharman Inquiry published its Final Report and Recommendations on Going Concern and Liquidity Risk. The key elements of the recommendations from the Panel included: clarification of the accounting and stewardship purposes of the going concern assessment and disclosure process and the related thresholds for such disclosures; encouraging companies to move away from a model where disclosures about going concern risks are only highlighted when there are significant doubts about a company’s survival; and a review of the FRC’s existing guidance. Prior to publication of this guidance the FRC had implemented the Panel’s recommendations in relation to Code companies as part of its September 2014 update to the Code and also published supporting Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.


  • A number of transparency measures have been announced recently:
    • the European Commission has adopted a proposal for a directive to require large, ‘multinational enterprises’ (“MNEs”) to publish details of their income tax paid, together with other relevant tax-related information on a country-by-country basis. It is intended to apply to all MNEs with an establishment in the EU. The objective is stated to be ‘to provide the tax administration with a complete set of information required to consider potential harmful tax practices rather than to provide the wider public with a general set of country-by-country data to improve transparency’.
    • HMRC has launched a consultation on new criminal offences for companies that fail to stop their employees from facilitating tax evasion. The consultation follows the Government’s announcement in 2015 that it would introduce such an offence and would consult further on draft legislation and guidance at the beginning of 2016; and
    • the UK, Germany, France, Italy and Spain have announced a pilot initiative whereby tax and other authorities from those countries will automatically exchange data on beneficial ownership of companies, trusts, foundations and other relevant entities.