September 11, 2025 Going Concern Accounting
In our March 2025 article, ‘New Going Concern Guidance’ we looked at the Financial Reporting Council’s (FRC) updated regulations in respect of going concern reporting. For small and micro entities which prepare their accounts in accordance with FRS102 or FRS105, those new regulations come into force for all accounting periods starting on or after 1 January 2026.
With this in mind, the FRC has now released a factsheet which it is hoped will aid directors of small and micro entities to meet their obligations in respect of going concern accounting. The factsheet is also designed to aid other entities such as LLPs which report in accordance with the same standards.
The headline requirement is for all companies to “assess the appropriateness of the going concern basis of accounting when preparing their financial statements;” with those statements being issued not only on a going concern basis but also with the assumption that the company will continue to trade for the foreseeable future. The only time in which financial statements can step outside the going concern requirement is when directors have determined that the organisation is to cease trading or liquidate.
As with other areas of financial reporting, going concern assessments should be proportionate to the size, complexity and particular circumstances of the organisation. However, this is not simply a backward-looking exercise with directors expected to take into account all relevant facts and circumstances known at the time of approval of the financial statements. This means that if circumstances have changed after the end of the reporting period, they should be taken into account before the going concern report is made. And in any event, in making their judgement directors are also required to look forward for a minimum period of twelve months to assess any material uncertainties which may affect trading outcomes.
Material uncertainties are defined as those internal or external factors which could adversely impact the company, the future direction of the company, or the decisions being made by investors and others. Examples include the cost and availability of raw materials, inflation, geopolitical events or technological developments. Directors are required to report on material uncertainties identified, the extent to which they may impact the company, and any policies put in place to mitigate the effects of those uncertainties.
Micro-entities which have adopted the FRS102 basis of accounting will need to follow the going concern requirements. Those which report in accordance with FRS105 should not comment in respect of going concern calculations. However, if they choose to make any disclosures beyond those required for micro-entities, they have to do so with reference to the Section 1A Small Entities section of FRS 102.
Elemental’s accounting professionals can provide relevant accounting support including advice on meeting the relevant accounting standards for each organisation.
