Senior officials from the Financial Reporting Council (FRC) are to appear before the House of Lords Economic Affairs Committee on 22 July to discuss progress on a number of issues including going concern
FRC chairman Sir win Bischoff and chief executive Stephen Haddrill are scheduled to provide the committee with a general update, with going concern likely to be high on the agenda. Last month the consultation on the FRC’s two-yearly review of changes to the UK Corporate Governance Code closed, following earlier consultations on directors’ remuneration (October 2013) and risk management, internal control and the going concern basis of accounting (November 2013).
If agreed, the changes to the Code will come into effect from October 2014. They include requiring companies to state in their financial statements whether they consider it appropriate to adopt the going concern basis of accounting and identify any material uncertainties to their ability to continue to do so.
The FRC also says companies should robustly assess their principal risks and explain how they are being managed and mitigated. Under the new rules they should state whether they believe they will be able to continue in operation and meet their liabilities taking account of their current position and principal risks, and specify the period covered by this statement and why they consider it appropriate. The FRC says it is expected that the period assessed will be significantly longer than 12 months.
In addition, companies will be required to carry out, at least annually, a review of their effectiveness risk management and internal control systems, and report on that review in the annual report.
Last week a group of investors, led by Robert Talbut of Royal London Asset Management and representing some £743bn of assets under management, said that proposed changes to the corporate governance code would weaken the assurances a company’s directors must currently give shareholders about its ongoing viability, in a letter sent to the Financial Times.