Proposed Resilience Statement - Part of UK Government's March 21 Corporate Governance Consultation

Yes its finally here! The UK Government is propsing that public interest entities publish an annual resilience statement building on existing going concern and viability statements.

Initially the statement will be required for premium listed companies in terms of their expertise and should extend to other public interest entities 2 years later.

These companies need to be transparent and need to demonstrate how their public interest obligations can be delivered.

Investors, creditors, employees, regulators and other key stakeholders should benefit from this.

There is also a key public interest that these companies don't screw up and promote disorderly failure which will affect wider society.

This cannot be over emphasised enough given the high profile failures we have experienced.

Companies disclose in their annual accounts whether they are a "going concern" or not.

Broadly this means they are in an appropriate position to cope with any risks and uncertainties they face within a given time period ( usually 12 months)

They must also disclose which annual risks and uncertainties they face and how they are going to be going to be dealt with.

The going concern concept will be examined in a further blog but it essentially applies to periods if up to 12 months from the publication of the accounts of a company.

The Brydon Review proposed that a new resilience statement will mitigate risks and uncertainties over:

1 .The short term, ( 1 to 2 years)

2 . Medium term ( Up to 5 years)

3 . Long term ( To be determined by the Company)

These are periods longer than the initial 12 months already mentioned covering the going concern concept!

The latter going concern will still be incorporated into future statements!

So What is the Government Proposing?

Businesses need to cope with risk and uncertainty over the above defined time periods.

In the short term, the business reporting should take account of the current going concern concept but over a longer period than 12 months.

The medium term should stretch to 5 years not three and the government wants companies to include at least two stress tests in their resilience statement.

The government recognises that it is up to companies what to report in their resilience statements but the following should be considered:

1. Liquidity, solvency and business continuity in the light of disruptive events.

2. Supply chain resilience

3. Cyber,Digital and data security risk

4. Possibility of productive future investment

5. Dividend policy

6. Climate change risk

7. Pandemic risk

The consultation asks whether these are the correct risks that should be considered.

Which other risks should be considered?

We have considered risks in earlier blogs!

The Task Force Financial Disclosures framework acts as a basis for how climate change can effectively be matched against current and future business models.

As stated previously listed companies should follow these recommendations immediately and other public interest companies in 2 years!

Presently these proposals do not apply to public benefit entities or the public sector but there is a strong sense that the consultation will apply to charitable companies.

Let's not be deluded, the not for profit sector will face very similar resilience reporting requirements very soon.

The consultation is live now and responses are due by July 2021.

The whole consultation publication is available at;

http://www.gov.uk/government/publications/restoring-trust-in-audit-and-corporate-governance

Any queries regarding this consultation should be addressed to:

audit.consultation@beis.gov.uk

This blog deals with public resilience so we need to know how these proposals might translate into the public and not for profit sector?

We need to think very deeply about this.

The going concern and climate change concepts will be considered in future blogs.

In the meantime please think what you would put in a resilience statement for your entity?

I believe we don't publish anything like this now, but I'm convinced we will have to!

Let's be prepared as to what we will need to do to address our resilience challenges!!!