Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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For how long is a director declaring solvency stating that the company will be able to pay its debts?

6 months
12 months
18 months
24 months

The correct answer is: 12 months

A director declaring solvency is making a confident assertion about the company's ability to meet its financial obligations. The declaration typically covers a period of 12 months. This timeframe is established to ensure that the company will have sufficient liquidity to manage its debts as they fall due. In this context, the 12-month period provides a reasonable expectation for assessing the company's financial stability and reflects a standard practice in corporate governance. Companies are expected to evaluate not only their current financial position but also their future prospects within this timeframe when making a solvency declaration. This protects creditors and other stakeholders by ensuring that directors are mindful of the company’s financial health over a relevant duration that is neither too short nor overly optimistic.