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FRC rethinks going concern

03/07/13

The Financial Reporting Council (FRC) has announced plans to reconsider its proposed draft guidance on going concern, after a host of industry experts expressed doubt and concern over aspects of the report.

After the accounting watchdog consulted the profession earlier this year on how best to implement Lord Sherman's recommendations for more broad-based going concern assessment that includes solvency as well as liquidity risks, it found that many workers were uncertain about the proposal.

Principles of going concern are crucial when it comes to allowing businesses to defer some of their expenses, meaning this is an issue that will have a wide degree of resonance for British firms - especially small and medium-sized enterprises (SMEs).

While there was general industry support for overhauling regulation in this area, many accountants felt the FRC's proposals would prove too onerous for small business owners and lead to a glut of red tape in an industry that already deals with plenty of this.

Hywel Ball, head of assurance for the UK and Ireland with Ernst & Young, said: "The distinction between preparing accounts on a going concern basis, and a company trading as a going concern was unclear. This could make it difficult to compare the disclosures of UK companies with their international peers."

Further complications could be produced when business directors determine whether they have a high level of confidence about the future expansion of their company, the Ernst & Young chief added.

More consultation documents covering SMEs, proposed changes to the corporate governance code and integrated going concern and risk management guidance are expected in the autumn.

This consultation process was one of the results of the global financial crisis, with the FRC especially concerned about how banks' disclosures were given a clean bill of health by auditors in the years before they had to rely on state intervention to continue trading.

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