The UK Financial Reporting Council (FRC) will issue separate, simplified guidance for SMEs when it develops guidance to support the principles advocated by Lord Sharman’s report "Going Concern and Liquidity Risks: Lessons for Companies and Auditors."
The decision was based on feedback given to the consultation paper "Implementing the Recommendations of the Sharman Panel – Revised Guidance on Going Concern and revised International Standards on Auditing (UK and Ireland)," which the FRC said the majority of respondents supported, albeit with certain caveats.
Aside from the desire for simplified SMEs guidance, respondents also wanted a clearer link between the assessment of business viability risks and the broader risk assessment that should form part of a company’s normal risk management and reporting processes.
There was also a desire for the FRC to make a clearer distinction as to the meaning of going concern in the context meant by the Sharman panel.
Currently, the report uses the term to describe both the specific assessment required when preparing the financial statements, and the broader assessment of the risks affecting a company’s viability.
The FRC said it expected to issue further consultation documents in the autumn covering SMEs, proposed changes to the code and integrated going concern and risk management code guidance.
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By GlobalDataTechnical Strategy Manager of the Institute of Chartered Accountants of England and Wales (ICAEW) Andrew Gambier described the decision to have further consultations as positive, saying, "the nature of the changes that were originally proposed would have caused disruption to businesses and their auditors over a very tight timetable.
"As a result, many businesses were ‘spooked’ about what was going to happen next. A further consultation gives the FRC the opportunity to address the issues raised by ICAEW and a number of other bodies."
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Institute of Chartered Accountants of England and Wales
