The UK Financial Reporting Council (FRC)
should clarify and harmonise the different definitions of a ‘going
concern’ and related risks in accounting, auditing and governance
requirements, according to an inquiry into going concern and
liquidity risk.

The Sharman panel report suggests the FRC
should review its guidance for directors to ensure going concern
assessments are integrated with business planning and risk
management.

The panel would also like to see going concern
reporting integrated with Effective Company Stewardship proposals
issued by the FRC.

The FRC should enhance the role of the auditor
and encourage the auditor’s report to disclose any issues in the
process of assessing a going concern and its outcomes.

The panel’s chairman, Lord Sharman, said the
final recommendations aim to refocus the going concern process to
support better risk decision-taking, ensure investors and
stakeholders are well-protected and informed about risks, and
directors recognise and respond to economic and financial distress
sooner rather than later.

FRC chief executive Stephen Haddrill said the
regulator will now embark on a careful consideration of the most
effective way to take these findings forward so as to improve the
quality of corporate reporting and dialogue between investors and
company boards.

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“The FRC reform has been designed partly to
enable us to respond positively to the panel’s
recommendation that we take a more systematic approach to
learning lessons when significant companies fail,” he said.

PwC UK head of public policy and regulatory
affairs Pauline Wallace welcomed the findings and said going
concern will be a key topic for the enhanced dialogue between
banks, their auditors and the regulators.

“Going concern risks remain at the forefront,
in light of the continuing difficulties caused by the sovereign
debt crisis. Preparers, auditors, the FRC and bank regulators will
need to study carefully and reflect on the Panel’s observations on
banks and going concern due to the evolving environment in Europe,”
Wallace said.