The Financial Reporting Council (FRC) and the Financial Conduct Authority (FCA) have published updated guidance for companies and auditors to ensure high quality financial information continues to flow to users to support decision-making.
As the busiest period of the year for finalising company accounts approaches, remote working, travel restrictions, home schooling, staff sickness and the uncertain economic outlook continue to have a major impact on the preparation of financial accounts.
Robust and efficient capital markets rely on high quality financial information and where necessary, the joint guidance encourages preparers and auditors to allow more time to publish their financial accounts, making use of available flexibilities.
Along with these measures, the FRC and FCA strongly encourage investors, lenders and other users of financial statements to take into account the unique set of circumstances arising from Covid-19.
Recognising the heightened challenges in preparing and auditing financial information, the FRC and FCA encourages all stakeholders to re-familiarise themselves with these measures, to use them if appropriate, and to view such use as normal practice during this period of heightened challenges.
The measures in place
The FCA and FRC is reminding companies of the measures that remain valid today, and which provide some flexibility. Check them out at: https://www.fca.org.uk/markets/summary-temporary-reliefs-companies-reporting-published-financial-information. This includes allowing listed companies an additional two months to publish their audited annual financial reports. This is because they recognise that we are now in the busiest period of the year for preparing, auditing and publishing financial information. This has coincided with further restrictions imposed through the recent national lockdowns in the UK.
Recognising the heightened challenges and in line with previous statements, the FCA and FRC is encouraging all stakeholders including in particular boards of listed companies to (1) re-familiarise themselves with the measures and (2) use them in light of any resourcing constraints in finance and/or audit teams to ensure the quality of reporting is not compromised during this period.
Alerting investors to reporting timetables
The two regulators have also alerted investors and other users of financial information, including lenders assessing covenant breaches arising solely because of changes in reporting timetables, that reporting timetables for companies might be extended for these reasons and to view these changes in the context of current events.
Keeping the market up-to-date
During this period, they stress that it is as important as ever that the market is kept up-to-date with information. The Market Abuse Regulation (MAR) remains in force and companies are still required to fulfil their obligations concerning inside information as soon as possible unless they have a valid reason to delay disclosure under the regulation. Companies must continue to assess carefully what information constitutes inside information at this time, recognising that the global pandemic and policy responses to it may alter the nature of information that is material to a business’s prospects.
Coronavirus-related reporting and audit guidance
The FRC has issued a series of guidance to support high-quality reporting and disclosure of the circumstances companies have faced as a result of the pandemic, and the mitigating actions they have taken to address risks. Go to: https://www.frc.org.uk/getattachment/1c657620-7e15-401d-a74f-25e2305f1104/Company-Guidance-Covid-19-Updated-December-2020.pdf. Further guidance was also included in the FRC’s year-end letter to CEOs, CFOs and Audit Committee Chairs: https://www.frc.org.uk/getattachment/d0448212-fe6c-4752-8abb-aeb414510fec/FRC_Year_End_Letter_Nov_2020_Final.pdf.
Given the heightened risk, challenge and uncertainty, audit committees may consider it appropriate to set out in their annual report the work they have undertaken, and the measures they have agreed to ensure high-quality reporting and audit for the period affected. This might include how they have ensured they have allowed enough flexibility in the year-end timetable to complete all the necessary work to an appropriate standard that will meet investor and stakeholder expectations.
Auditors’ duty to report
The FCA and FRC have reminded audit firms of their regulatory obligations to report, to the appropriate regulator, matters arising from their work on a timely basis.
Auditors have been told to refer to the FCA’s Dear CEO letter (https://www.fca.org.uk/publication/correspondence/letter-to-fs-auditors-on-reporting-obligations.pdf) published in August 2020, and the FRC’s IAS (UK) 250 Section B – The auditor’s statutory right and duty to report to regulators of public interest entities and regulators of other entities in the financial sector: https://www.frc.org.uk/getattachment/09caed0b-34f9-4cc9-9a21-91e5bc4805d5/ISA-(UK)-250B_Revised-November-2019_Updated-With-Covers.pdf.