The Viability Test

The Financial Reporting Council has come up with another small headache for business owners.  In an attempt to improve on the current ‘going concern’ statement that Directors must tick in current year end accounts, the FRC has hit on the idea of getting Directors to commit to saying how long they think their organisation will stay viable.   Under the proposed new code a company board will have to state that the company is viable for ‘the foreseeable future’ and to identify how long that ‘forseeable future’ is.

What we are looking at here is accountability.  How accountable Directors and Boards should be.  To mix metaphors the waters here are a bit muddy and a thesaurian battle of words; to what extent should company Directors be making assertions, declarations, affirmations or committed statements about the future solvency of their business?   The FRC started this review last year in an attempt to clarify what ‘going concern’ actually means, and the distinction between the assessment of the company’s health when preparing the accounts and the assessment of the risks affecting its continued trading.  The consultation has been through several rounds so far and has been less than enthused about by the Institute of Directors, whose corporate governance advisor Oliver Parry said ” It would be difficult and unrealistic to think that a company could predict the future beyond 12 months.”

It goes without saying that there should be clear lines of accountability in organisations, however as yet no-one seems to be agreeing on how this accountability should be worded.   Accountability is about integrity and ownership of our actions, being responsible for the decisions we make.  This is relatively simple when it only involves us, the one person, but it is much harder when taken to an organisational level.