Early in November, the Financial Reporting Council (FRC) announced new accounting regulations for listed companies: risk management; internal control; and the going concern basis of accounting.
The new requirements will mean that sophisticated solvency and liquidity risk reports will be mandatory and that auditors will be required to both check the company's risk assessment and assess these risks themselves. The FRC said that the "narrow accounting basis" of going concern would be retained, but that it would incorporate the stewardship definition into the reporting of solvency and liquidity risks.
The council was quoted in the media as saying: "When looking at going concern in layman's terms, people want to know if the entity is going to be able to settle its bills. We wanted to move away from giving a going concern statement in the narrative report."
Robust risk assessments
The new rules will require companies to undertake robust risk assessments, often backed up by scenario modelling, and for auditors to be able to investigate and challenge the work that was carried out to evidence these assessments.
With an October 2014 application date, the timeline to implement these activities is challenging to say the least, and access to established expertise in the modelling of financial uncertainty and risk will be vital.
Few professionals have the technical knowledge and judgement required to undertake the modelling that these new rules demand. Clearly, there is an opportunity here for actuaries to play a key role in helping companies and auditors to implement these new requirements.
