The Financial Reporting Council (FRC) issues new guidance on company solvency and going concern basis

Hayley Kirton
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The new guidelines aim to make it easier to explain if businesses can keep going (Source: Getty)

The accountancy watchdog has today issued new guidance for companies on how to make it clear in their accounts whether their business can afford to keep running for the foreseeable future.

The report published by the Financial Reporting Council (FRC) aims to help directors to understand the going concern basis in accounting alongside the relevant disclosure requirements.

The guidelines are aimed at companies which have not signed up to the FRC's UK Corporate Governance Code.

"The FRC encourages companies to take a broader longer-term view of the risks and uncertainties facing their business," said Melanie McLaren, executive director at the FRC. "We have seen an evolution in corporate reporting in recent years."

In 2011, the FRC helped to establish the Sharman Inquiry to examine going concern and liquidity risks in light of the financial crisis. In 2012, the inquiry published its report, which identified a need for clearer statements in accounts about whether businesses thought they could keep going for the foreseeable future.

McLaren continued: "The Sharman Inquiry and the Strategic Report with its forward looking-orientation have been catalysts for change and it is important for our codes, standards and guidance to remain current against this backdrop. Directors have told us that they welcome practical guidance."

The newest guidance replaces previous guidance on the subject by the FRC published in 2009.

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