FRC guidance on going concern - what do you need to know

The Financial Reporting Council (FRC) published its updated Guidance on the Going Concern Basis of Accounting and Related Reporting (including Solvency and Liquidity Risks) (the “guidance”) in February 2025.

What is the purpose of this guidance?

This guidance consolidates the requirements of company law, accounting and auditing standards, listing rules, the UK Corporate Governance Code (the ‘Code’), and other relevant regulations into a single and comprehensive source. It replaces the FRC's 2016 Guidance on the Going Concern Basis of Accounting and Reporting on Solvency and Liquidity Risks, serving as a one-stop shop for reporting on going concern, solvency, and liquidity risks for both Code companies (companies applying the Code) and non-Code companies.

Does the guidance apply to your company?

The guidance is applicable to all UK companies except small and micro-entities, although small companies may still find its contents useful.

What do you need to know about the Guidance?

Scenarios: The guidance explains there are four possible scenarios for companies in relation to going concern;

Going concern basis of accounting is appropriate and there are no material uncertainties.
Going concern basis of accounting is appropriate and there are no material uncertainties but reaching that conclusion involved significant judgement.
Going concern basis of accounting is appropriate but there are material uncertainties. Reaching that conclusion may or may not involve significant judgement.
Going concern basis of accounting is not appropriate.

The updated guidance extends to include scenario 2 and also highlights that a conclusion that material uncertainties exist (Scenario 3) might also involve the application of significant judgement.

Disclosures: Under IAS 1 Presentation of Financial Statements, entities should disclose the basis of preparation with an explicit statement indicating whether the financial statements are prepared on a going concern basis, along with any material uncertainties involved. The updated guidance emphasises the requirement to disclose significant judgements and assumptions made to reach this conclusion. Such disclosure should be specific to the company and sufficiently clear to explain the basis of the assessment.
Assessment period: Companies must consider a period of at least 12 months from the date the financial statements are authorised for issue. If significant events or conditions that could affect the going concern basis of accounting are foreseeable beyond this minimum period, a longer assessment may be appropriate. The assessment period for solvency and liquidity risks is expected to be longer than the going concern assessment, but at a higher and more aggregate level, given the forward-looking and long-term predictive nature of the assessment.
Connectivity: Companies should take into account the relevant assessments and disclosures in their financial statements, such as the going concern assessment, material uncertainties relating to going concern, and impairment reviews in solvency and liquidity risk assessments and disclosures. It is important to ensure that the financial statement-related assessments and the solvency and liquidity risk assessment present a coherent narrative, with clear emphasis on the linkages among these disclosures.
Assessment and techniques: There is not a one-size-fits-all answer for going concern assessments. A company’s assessment should be proportionate to the size and complexity of its situation and circumstances. Companies with simpler financial structures, straightforward business models, and better historical profitability are likely to require less extensive assessments than those with more complex financial structures and exposure to dynamic geopolitical and economic conditions. A combination of techniques, for example, sensitivity analysis, stress testing, scenario analysis, and reverse stress testing, can be used to perform the assessment. The choice of technique depends on the level of uncertainty, the complexity of key assumptions, time horizons, and the purpose of the analysis.
Group consideration: The going concern and liquidity and solvency risk assessments should be performed at the subsidiary level when issuing subsidiary financial statements. Subsidiary companies involved in cash pooling or cross‐guarantee arrangements are exposed to higher risks, increasing the complexity of the going concern assessment. Therefore, it is crucial to understand the terms and arrangements to ensure the assessment accurately reflects the group’s actual repayment ability and/or the support available to the relevant company. The required evidence to support the going concern assessment depends on the performance of the group companies and past experience with similar group arrangements.
Auditor responsibilities: Auditors are responsible for evaluating each company’s going concern assessment to determine the appropriateness of the going concern basis of accounting, the existence of any material uncertainties, and the sufficiency of disclosures. When a material uncertainty exists, even if the auditors conclude that the going concern basis is appropriate and the disclosure of the material uncertainty is adequate, they will still highlight it in the auditor’s report.

What should you be doing?

Although the updated guidance is not mandatory, it consolidates all relevant requirements and reflects updates in accounting and auditing standards. It provides direction and sets out good practice to help companies conduct thorough and robust going concern assessments and present meaningful disclosures in an environment of growing challenges and uncertainties. Companies are encouraged to familiarise themselves with this guidance and apply it in their going concern assessments and disclosures.