ACCA - The global body for professional accountants
While we welcome most of the Sharman Panel’s recommendations, the elaborate nature of the FRC’s draft guidance could lead to a range of interpretations and runs the risk of giving stakeholders a false sense of assurance
—Paul Moxey, head of corporate governance and risk management, ACCA

Complex guidance may provide smoke screen for negligence

Plans for new guidance on assessing and reporting on ‘going concern’ in company accounts are necessary and welcome, but some elements of the proposals may prove difficult to implement by smaller businesses, the ACCA (the Association of Chartered Certified Accountants) has warned. 

In responding to the proposals for new guidance issued by the Financial Reporting Council (FRC), Paul Moxey, ACCA head of corporate governance and risk management, said: 'The going concern concept is crucial to all companies, including small ones. The new draft guidance is, though, written with the circumstances of companies that have specialist audit and risk committees primarily in mind; the assumption that companies will always have these resources is wholly inappropriate for smaller businesses. The approach adopted will therefore be hard to implement for those many smaller businesses who do not have specialist committees in place. 

'Shareholders’ main interest in any going concern assessment is to know whether the company will still exist in 12 months time. To meet their needs, and to ensure the guidance is suitable across the board, we would prefer to see a set of good practice principles introduced for all businesses to adhere to, with supplementary guidance provided for larger companies to guide them in reporting on how they apply the principles and comply with the UK Corporate Governance Code.'

An elaborate smoke screen 

ACCA says that since the banking crisis, shareholders and other stakeholders are more aware of risk and how it is managed, so the need to keep going concern reporting guidance simple is paramount.

Paul Moxey said: 'While we welcome most of the Sharman Panel’s recommendations, the elaborate nature of the FRC’s draft guidance could lead to a range of interpretations and runs the risk of giving stakeholders a false sense of assurance.

'There is also the danger that the new guidance is so complex that it could provide a smoke screen for any negligent party in a company failure to claim that they had fully complied. A court or inquiry would be hard pressed to prove otherwise. What companies and auditors need is uniformity in vital financial reporting matters such as this, and wherever there is scope for differences in interpretation, and variations from country to country, this goal risks being undermined.'