The FRC’s Sharman Inquiry was seeking views about whether any lessons could be learned from the financial crisis with regards to IFRS and going concern.

The going concern assessment means managers and auditors have to consider for any financial report whether it is reasonable to assume the business is sustainable and will still be around in a year’s time. The assessment of liquidity risks is about how certain it is that a company will be able to meet its liabilities as they fall due.

ACCA believes that financial statements that are compliant with IFRS provide a great deal of information which should be relevant for investors and others to assess a company’s financial health in this way. However a significant improvement to IFRS would be to extend the future period that needs to be considered.

ACCA notes that the financial crisis and the bail out of banks has thrown going concern and liquidity issues into the spotlight. Observers have asked what benefit the assessment can have if an entity can be classified as a going concern at the balance sheet date, and yet have to declare very material levels of additional liabilities a short time later. In the recent crisis there may have been cases of failure to disclose where there are material uncertainties regarding the going concern basis. There may be a reluctance to own up to these uncertainties when the disclosure itself may increase the risk that confidence evaporates and credit may be withdrawn.

Press release