Such is the ever-growing emphasis on risk management that a requirement has now been introduced under the FCA Listing Rules for all UK listed companies to include a viability statement in their annual report.
The new provision will be added to the UK Corporate Governance Code, and calls for directors to explain in the annual report how they have assessed their company’s prospects, taking into the company’s current position and principal risks. The provision C.2.2 also requires directors to outline the period for which they have carried out their assessment and why they consider that period to be appropriate.
The provision continues: “The directors should state whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, drawing attention to any qualifications or assumptions as necessary.”
The time period covered in the viability statement should differ from that covered by the existing going concern statement. Whereas the going concern is required to cover at least 12 months from the date the financial statements are approved, the viability statement should look forward for a term much longer than 12 months. Although recent early disclosures cover a five-year period, this will vary from one type of company to the next.
Directors are advised to choose a time period based on their own organisation’s commercial reality, linked to the company’s business planning period. They should also state whether they reasonably expect the company to be able to continue in operation and meet its liabilities as they fall due over their assessment period, highlighting any necessary qualifications or assumptions.
Supporting the viability statement is a company board’s review of the effectiveness of systems and the company’s risk appetite and culture. The company’s risk management and internal control systems should also be monitored by the board, with any failures or weaknesses in those areas being addressed accordingly. As part of the viability statement, the risks to the company’s business model, future performance, solvency and liquidity should all be assessed, based on stress testing analysis using plausible scenarios.
With the viability statement covering a company’s principal risks and uncertainties, it should be included within the strategic report, with a link also being made between the disclosures and the company’s overall strategy.
At London Registrars, we can assist you with many of the practicalities of this new requirement, from determining the appropriate assessment period and the consideration of stress testing, to the identification of relevant qualifications and assumptions and the robust assessment of principal risks. Help with the listing rules is one part of our highly regarded and professional ltd company incorporation service, complete with extensive legal and business support.