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While we welcome most of the Sharman Panel’s recommendations, the elaborate nature of the FRC’s draft guidance could lead to a range of interpretations and runs the risk of giving stakeholders a false sense of assurance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 The new draft guidance is, though, written with the circumstances of companies that have specialist audit and risk committees primarily in mind; the assumption that companies will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Paul Moxey said: 'While we welcome most of the Sharman Panel’s recommendations, the elaborate nature of the FRC’s draft guidance could lead to a range of interpretations and runs the risk of giving stakeholders a false sense of assurance.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.' 

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For more information, please contact:

Steve Rudaini, ACCA Newsroom
+ 44 (0) 207 059 5622
+44 (0) 78011 33985
steve.rudaini@accaglobal.com

Helen Thompson, ACCA Newsroom
+44 (0)20 7059 5759
+44 (0)7725 498654
helen.thompson@accaglobal.com 

Notes to Editors

  1. ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. We aim to offer business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. 
  2. We support our 154,000 members and 432,000 students in 170 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. We work through a network of over 80 offices and centres and more than 8,400 Approved Employers worldwide, who provide high standards of employee learning and development. Through our public interest remit, we promote appropriate regulation of accounting and conduct relevant research to ensure accountancy continues to grow in reputation and influence. 
  3. Founded in 1904, ACCA has consistently held unique core values: opportunity, diversity, innovation, integrity and accountability. We believe that accountants bring value to economies in all stages of development and seek to develop capacity in the profession and encourage the adoption of global standards. Our values are aligned to the needs of employers in all sectors and we ensure that through our qualifications, we prepare accountants for business. We seek to open up the profession to people of all backgrounds and remove artificial barriers, innovating our qualifications and delivery to meet the diverse needs of trainee professionals and their employers.