FRC consultation on risk management, internal control and the going concern basis of accounting – an NAPF response
The NAPF has responded to the Financial Reporting Council’s (FRC’s) latest consultation on proposals to implement the recommendations of Lord Sharman’s 2012 Inquiry Going Concern and Liquidity Risks: Lessons for companies and auditors.
The new proposals aimed to respond to criticisms from the accounting profession and companies about the FRC’s original proposals in January 2013. The new proposals aimed to make a more clear distinction between the specific assessment of going concern when preparing financial statements, and the broader assessment of the risks affecting a company’s viability.
The NAPF response urged the need for a clear and explicit statement by boards about these issues. While we welcome the proposals’ emphasis on the need for a robust risk assessment by boards and on the important role of auditors in ensuring reliable communication to investors, we were concerned about the removal of a need to make any explicit statement.
The NAPF firmly recommended that there should be an explicit positive statement by boards in respect of the company’s ongoing viability. The Board should confirm that it has carried out a robust assessment of the principal risks facing the company, including those that would threaten its solvency or liquidity. It should subsequently confirm that it considers that the company will continue to be viable for at least the next 12 months. This requirement to assess risks robustly and positively attest viability should add significant value to investors and the market.