The Financial Reporting Lab of the Financial Reporting Council (FRC) has published its third thematic review of companies’ viability and going-concern disclosures, highlighting areas for improvement and offering examples of best practice. This current report recommends more thorough and bespoke disclosures of management’s plans around solvency and liquidity over the short, medium, and long term.
All of the new report’s recommendations require increased reliance on business valuation methods, including:
- Increased modelling risks and uncertainties—FRC recommend disclosure of specific risk scenario modelling to support both going-concern and long-term viability conclusions.
- Stronger inputs and assumptions—The report calls on financial experts to provide “more granular qualitative and quantitative detail of the inputs used and assumptions made.” All global business valuation standards obviously require disclosure of inputs and assumptions.
- Clearer period-by-period risk assessments—Like revenues and expenses, FRC further recommend that company-specific risks be modelled over each forecasted financial period, another business valuation best practice. FRC mention risks inherent in the company’s business model, strategy and development, investment or capital allocation plans, and debt coverage.
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