Risk management

The UK Corporate Governance Code makes the board responsible for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. Boards are also required to maintain sound risk management and internal control systems and have to review their effectiveness at least annually and report on that review in their annual report.

The Sharman Inquiry’s 2012 Final Report into going concern and liquidity risks identified lessons for companies and auditors in this area. As a result, the 2018 UK Corporate Governance Code requires directors to state whether, taking account of the company’s current position and principal risks, they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due, drawing attention to any qualifications or assumptions as necessary. Directors are also required in their annual and half-yearly financial statements to state whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and identify any material uncertainties to the company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements. The FRC’s 2014 Guidance for directors on risk management, internal control and related financial and business reporting sets out best practice in relation to internal control for UK listed companies and assists them in applying these requirements of the 2018 UK Corporate Governance Code. Separate guidance for bank directors providing background information explaining the context of solvency and liquidity risk assessments for banks has also been produced by the FRC.

Financial Reporting Review Panel/Financial Reporting Council

Sharman Inquiry

  • Final report and recommendation of the Sharman Panel of Inquiry “Going concern and liquidity risks - Lessons for companies and auditors” - June 2012
  • Preliminary report and recommendations of the Sharman Panel of Inquiry “Going concern and liquidity risks - Lessons for companies and auditors” - November 2011

作者

Consultant
Knowledge Of Counsel