FRC updated guidance to support going concern reporting

Following consultation, the FRC has issued updated guidance on the ‘Going Concern Basis of Accounting and Related Reporting, including Solvency and Liquidity Risks ’. The guidance is not mandatory, but intends to act as a guide to support medium and larger companies to prepare compliant disclosures in a proportionate and scalable way.

The new guidance replaces the previous guidance released in 2016, and reflects revisions to the ISAs and guidance, but also the challenging economic environment that companies have been navigating since 2016 – including the significant challenges faced during and after the COVID period.

While companies that fall below the medium company threshold still need to assess whether the going concern basis is appropriate, the guidance is not intended for these entities given the reduced disclosure frameworks that exist. That said, auditor should be mindful of the guidance provided as there can be real challenges in hitting the right balance in disclosures where small companies encounter going concern uncertainties.

Significant disclosure omissions are a common monitoring finding. In 2024 the majority of visits conducted identified beaches of statutory disclosures, and insufficient disclosures relating to Going Concern are one of the key issues that crop up regularly. Auditors should take care that audit report commentary on material uncertainties relating to going concern should cross refer to existing disclosures in the accounts on the matter, and comment in the audit report does not negate the need for the client to make the required disclosures. There may be challenges to consider where an audit client is a small entity that has some disclosure exemptions under FRS102, and care should be taken to ensure the requirements of the ISA are carefully considered in such cases.

The FRC guidance includes the following table which is a useful reference point:

Main requirements – Financial Statements	Micro	Small	Medium / Large	Applying Code
Assessment of the appropriateness of the going concern basis of accounting	❌	✔️	✔️	✔️
Statement when the financial statements are prepared on a going concern basis	❌	✔️	✔️	✔️
Disclosure of material uncertainties or when the financial statements are not prepared on a going concern basis	❌	✔️	✔️	✔️
Disclosure of significant judgements related to the going concern basis of accounting and any material uncertainties	❌	✔️	✔️	✔️
Additional disclosures may be required to give a true and fair view	❌	❌ / ✔️*	✔️	✔️
Other relevant financial statement disclosures	❌	❌	✔️	✔️
Strategic report	Micro	Small	Medium / Large	Applying Code
Description of the principal risks and uncertainties facing the company	❌	❌	✔️	✔️
Assessment of prospects (viability statement)	❌	❌	❌	✔️

* The FRC guidance clarifies that for periods beginning on or after 1 January 2026, small companies are required to provide the disclosures set out in FRS 102, paragraphs 3.8A and 3.9. For periods until then, there has been no explicit requirement in the Companies Act 2006 or FRS 102 for companies entitled to prepare accounts in accordance with the small companies regime to report on the going concern basis of accounting and any material uncertainties. Directors of small companies are required to make such disclosures as are necessary for the financial statements to provide a true and fair view. Appendix E to Section 1A of FRS 102 encouraged the inclusion of disclosures on material uncertainties to meet this requirement.

The guidance note provides a number of useful illustrative examples throughout, and as with a number of other recent releases the guide was delivered along with a podcast to give useful context and practical commentary to support those preparing accounts.(and as a result is considered clearly relevant to those auditing such disclosures too.