Reporting guidance concerns raised by accounting regulator

The Financial Reporting Council (FRC) is consulting on draft guidance regarding on going concerns about the quality of information that investors receive about businesses.

The new consultation will focus on the assessment and reporting of accounting, solvency, and liquidity risks over the longer term.

Help for directors

The accounting regulator aims to produce new guidance to help directors when it comes to applying relevant requirements in company law and accounting standards. These moves come in the face of the introduction of new UK and Ireland regulatory developments.

Last year, the FRC updated the UK Corporate Governance Code in light of the recommendations of the Sharman Inquiry that reported on liquidity risks. The guidance was for companies applying the Code, and now the new draft guidance is the best practice advice for non-Code companies which was also promised at the time.

Executive director of codes and standards at FRC, Melanie McLaren, said: "The Sharman Inquiry highlighted the need for clarity by all companies on the going concern basis of accounting. It identified the need to consider liquidity and solvency when analysing the principal risks a company faces and the need to take a broader longer-term view."

Practical aim

By following the new guidance, directors will have to use their own judgement to determine how to meet their legal responsibilities. The FRC says it will encourage the use of assessment techniques and disclosures that directly relate to the size and scope of the company.

However, the new guidance is not directed at SMEs and micro companies who do not need to prepare a strategic report.