FRC investigates going concern assessments and gives new guidance on board effectiveness

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Welcome to Financial Reporting Matters

Welcome to the latest edition of Financial Reporting Matters; our main focus is two recent FRC initiatives.  The FRC intends to identify lessons to be learned in assessing going concern and liquidity issues; it has also published new guidance on board effectiveness. 

We also invite you to a seminar, hosted by KPMG in the UK and Berwin Leighton Paisner, covering recent developments in dividends and distributions. 

In addition KPMG's International Standards Group, a part of KPMG IFRG Limited, has produced two 'New on the Horizon' publications.  These outline the impact of the IASB's recent exposure drafts on offsetting financial assets and financial liabilities and impairment of financial assets held in an open portfolio.  They are available for download, free of charge, here.

If you have any comments on this edition or if you would like one of your colleagues to receive future editions of Financial Reporting Matters you can contact me at FinancalReportingMatters@kpmg.co.uk.

Andrew Vials, Senior Technical Partner

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Going concern assessments - FRC looks for lessons to be learned

The FRC has set up a panel to recommend measures which may be necessary to improve the existing reporting regime and related guidance for companies and auditors in relation to going concern and liquidity issues.  This will draw on the experience of companies and auditors who have had to address these issues in the recent difficult economic times. 

The going concern principle is a key aspect of auditing and reporting. 

The FRC intends to examine several areas, including:

• How companies ensure the adequacy, timeliness and reliability of the internal information used to monitor these risks;
• How the Board and, separately, the Audit Committee approach these risks; 
• How the consideration of these risks can best be incorporated into other aspects of stewardship and reporting; 
• How auditors approach these matters; and 
• Whether the existing reporting regime and related guidance (such as the FRC's Guidance for Directors of UK Companies, auditing standards on going concern and disclosures required by IFRS, the Corporate Governance Code and the Listing Rules) should be developed further.

We welcome the opportunity to contribute on this important topic. 

The FRC press release is available here.

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FRC publishes new guidance on board effectiveness

The FRC has issued new guidance, aimed at executive and non-executive directors.  This replaces the Higgs Guidance, which provided similar guidance on the role of the board and non-executive directors.

We see this document as a guide to the main requirements of the Corporate Governance Code (“the Code”).  It is not a checklist of the Code’s requirements. 

The guidance deals with leadership and the effectiveness of the board.  It addresses issues such as: the roles of the chairman, senior independent director, other directors and the company secretary; decision-making policies and processes; board composition and succession planning; and evaluating the performance of the board and directors.

The FRC press release is available here.

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'Ignorance is not bliss' - latest developments in dividends and distributions

KPMG in the UK and Berwin Leighton Paisner are hosting a free seminar on Wednesday 6 April, from 6.30-7.30pm at The Auditorium, Adelaide House, London Bridge.  The seminar will discuss important recent developments in the accounting and legal treatment of distributions in the context of intra-group transactions at an undervalue, "cash boxes", pre-acquisition profits and dividends in kind.

To register or for more information, please email dividends@kpmg.co.uk.

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