Viability statements: the role of internal audit

This is the second of five pieces from an internal audit perspective on the 2018 UK Corporate Governance Code: Non-executive recruitment (1), Viability statements (2), Audit committee effectiveness (3), Culture (4) and the Workforce voice (5).

In 2014 the UK Corporate Governance Code introduced new requirements in respect of the reporting of the board’s views on the principal risks and longer-term viability of the company. It is part of the strategic report to investors and unlike the going concern statement which is limited to the year ahead addresses the long-term health of the organisation.

So why cover it now if it’s not new?

There is increasing pressure for investors to be more active in their portfolio of organisations. With its long-term perspective the viability statement is therefore high profile and of growing importance to boards. So how do boards gain assurance on its adequacy? Perhaps it is already on the audit plan but more likely it isn’t. The question is, should it be? We believe so.

Some chief audit executives may consider this the realm of the external auditors. The Institute is confident that its internal auditors have the skills to provide assurance over the front end of the annual report; including the viability statement.

This paper will explore what a good statement looks like, the process behind it and the provision of assurance. Although the Code is for the private sector, audit leaders in not-for-profit organisations will also recognise the importance of viability and the increasing transparency that stakeholders expect.

RECAP. On 16 July 2018 the Financial Reporting Council (FRC) published its long awaited update to the UK Corporate Governance Code together with revised Guidance on Board Effectiveness.

The revisions support the government’s vision of restoring trust in the corporate organisations and the broader social reform agenda which aims to…