UK: FRC study of going concern and liquidity risk disclosure

The Financial Reporting Council has published the results of its study exploring going concern and liquidity risk disclosures. The FRC examined the December 2007 or March 2008 annual reports of 30 UK listed companies (including AIM). Companies were chosen if they had issued a profits warning, announced a rescue rights issue or announced funding difficulties during the first half of 2008. The following findings, inter alia, were made (to quote directly from the report):

The study found that information about going concern and liquidity risk was included in many different places in the annual reports reviewed. This made it difficult to develop a coherent and comprehensive picture of how liquidity concerns were relevant to the businesses. Disclosures were sometimes to be found in the chairman’s statement, chief executive’s report, Directors’ Report as well as in the notes to the accounts.

The study concluded that it would be particularly helpful if all of these disclosures could be brought together into a single section of a company’s annual report and accounts as this would facilitate a better understanding. If this is not practical, it would be helpful if the key disclosures are brought together by way of a note including cross references to other disclosures to help readers of financial statements find all of the relevant pieces of information.