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Accounting

Guidance for Directors: still appropriate?

Written by Gary Howes
Friday, 29 August 2008
Financial Reporting Council set out agenda for review. The FRC has today published a Consultation Paper setting out its proposals to revise the Guidance for Directors on Going Concern and Financial Reporting. Related Articles Oil and gas companies reporting incorrectly Morning business news FSA acts on City bonuses Alliance and Leicester fined by FSA Traders exploit loophole in short selling ban The Listing Rules of the Financial Services Authority (FSA) and the Irish Stock Exchange require the annual reports of listed companies to include a statement by the directors on the going concern status of the company. In making their statement, directors are required to consider the guidance contained in 'Going Concern and Financial Reporting: Guidance for directors of listed companies registered in the United Kingdom', which was published in 1994. FRC Chief Executive Paul Boyle said, "In light of the current economic conditions we believe that it is timely to consider whether the Guidance for Directors on Going Concern remains appropriate, and whether it can be improved." The Consultation Paper has been produced on the assumption that the Guidance for Directors, and in particular the disclosure requirements should continue to exist. However the FRC acknowledges that developments in accounting standards and markets may mean that the guidance needs to be refreshed. Accordingly, the Consultation Paper contains a proposed updated version of the existing Guidance for Directors. Amendments have been kept to the minimum necessary and the views of stakeholders are sought as to whether more fundamental change is necessary. FRC Director of Corporate Reporting Ian Wright said, "the FRC believes that the going concern basis of accounting is so fundamental to the preparation of financial statements, that directors should continue to be required to make an explicit written statement in the annual report regarding the appropriateness of the use of the going concern assumption. The FRC believes that directors should disclose in their statement when the period they have reviewed in making their assessment of going concern does not extend to at least 12 months from the date of their approval of the financial statements”. Comments on the Exposure Draft are invited by 24 November 2008. The FRC intends to publish a summary of key comments received and its plan for revision during December 2008 to assist Boards of Directors to understand how the Guidance for Directors may be amended.