Are companies focused on delivering long-term viability? We are concerned about limitations in the legal framework around how directors assess and communicate their opinion on companies’ continued viability, also known as ‘Going Concern’ status.
In 2012, a government commissioned review - the Sharman Inquiry - concluded that there is a need to strengthen and clarify the ‘stewardship going concern’ statement, including:
- The requirement for directors to consider longer-term solvency risks, taking into account business cycle and other economic and financial factors
- Improved disclosures around the risks and assessment process
- An auditor opinion of the going concern disclosures
We support the key conclusions of the Sharman Inquiry team, and especially the emphasis placed on the behavioural impacts of requiring directors to make a positive assertion that the business will be a Going Concern into the foreseeable future.
We do not expect a guarantee, but do expect prudent and reasonable behaviour from directors charged with stewarding our clients’ capital. Critically, we expect businesses to be managed through an economic cycle, rather than just for the good years.
Ongoing engagement with policymakers and companies
We engaged with the Financial Reporting Council to urge them to implement the Sharman recommendations in full.
The final FRC proposals – couched within broader revisions to the Corporate Governance Code published in September 2014 – fell short of our expectations. Nevertheless, they included a requirement for a separate long-term viability statement which is distinct to the accounting Going Concern statement, which looks forward 12 months.
We will continue to reach out to policymakers and companies to set out our expectations for the long-term viability statement, and why it is so vital to reinforcing responsible stewardship.