FRC overhauls guidance

News Article - 28 August 2008
Category: Business

The Financial Reporting Council (FRC) is issuing new guidance which will incorporate new requirements which have been caused by international financial reporting standards.

The accounting watchdog will now require companies to explain why they believe they can continue as a going concern, reports Accountancy Age.

Directors will in future be required to closely study the assumptions which underpin statements about their company's future.

The FRC's director of corporate reporting, Ian Wright, blamed the credit crunch, which has made banks become more cautious about lending.

He told the website: "This has reduced the liquidity in the market, which has created issues with banks who are even more careful in lending to each other.

"This has also reduced covenant figures for companies who depend on the capital provided by banks… and led to the need to consider going concern issues."

Accountancy Age cites an example where the extra scrutiny could apply.

A company looking at a shorter period than a year over which they can go on may have to justify that, including stating that they will not require to liquidate or cut back on their current business.

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