Commenting on the FRC’s consultation draft of guidance on going concern reporting, Tony Cates, Head of Audit at KPMG, said:
“At KPMG we’re strong supporters of the Sharman recommendations, which the FRC is now proposing to implement. Shareholders need and deserve better depth and coverage in narrative reporting accompanying the accounts about the long-term potential vulnerabilities and adaptability of the business model, with some audit reporting around that.
“Today’s proposals from the FRC potentially hold out a good prospect of delivering those improvements. So at KPMG we look forward to the dialogue between shareholders, companies, auditors and the FRC about how to refine and finalise this draft guidance. For example, I think that it would be good to hear from companies whether they feel that they have enough practical guidance here to enable them to produce a report that looks at potential events and developments a long way into the future.
“Where I am sure that there will be intense debate, however, is over what seems to be the high hurdle set by the FRC for a company to conclude, as part of its report, that it is a going concern. A company needs to be able to say that there is high confidence that, over the general economic cycle - the length of which may be open to debate but is potentially a long timescale - it will be able to sustain its business model, strategy and operations and remain solvent. My concern is that it will be difficult for many companies to meet what appears to be such a tough test.
“I do agree though that boards need to challenge their companies’ business models in such tough terms –– and then report their findings about how vulnerable they might be, from what causes and how they might adapt and cope. However, we need to find a model for them to report back on this without it being shoehorned into a simple binary verdict around “unqualified going concern” or not. In that way boards will be encouraged to do what the FRC wants them to do: think hard, think laterally and openly report the findings.”
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Mark Hamilton, KPMG Corporate Communications 020 7694 2687
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