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Taking the long view

What do auditors need to know about longer-term viability statements? James Roberts provides some answers.

The first thing that many auditors need to know is that the requirement for a longer-term viability statement in the annual report (AR) is not something that will affect them or their audit clients. It is one of the changes that was introduced when the UK Corporate Governance Code was revised in 2014. The Code applies only to companies with a premium listing of equity shares in the UK (regardless of where they are incorporated) and those that chose to report on how they have applied the Code or explain why they have not.

However, directors of affected companies will soon be including in their 2015 AR and accounts their first longer-term viability statements, and their auditors will be affected. The revised Code introduced the requirement that, for accounting periods beginning on or after 1 October 2014, directors state in their company’s AR that they have a reasonable expectation that the company will be able to continue in operation and to meet its liabilities as they fall due over the period of their assessment, drawing attention to any qualifications or assumptions as necessary.

The period to be covered by the assessment is a decision for the directors. It should be significantly more than 12 months from the date of approval of the financial statements. It is anticipated that periods chosen will be between three and five years. But this depends on the nature and circumstances of the business, and the budgeting, forecasting and risk management processes it undertakes, which coincides with the company’s NEIL WEBB / IKON longer-term strategic plans.

This is an extract from an article in the November 2015 edition of Audit & Beyond, the magazine of the Audit and Assurance Faculty.

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