Newsflash – FRC issues thematic review of company reporting since the onset of COVID-19 has been saved
Newsflash – FRC issues thematic review of company reporting since the onset of COVID-19
Continuing to promote the importance of providing high quality forward-looking information in the current environment, as set out in recent announcements and guidance, the FRC has today published the key findings of a review of the financial reporting effects of COVID-19 for a sample of interim and annual reports and accounts with a March period end.
Whilst most of the 17 companies reviewed had provided sufficient information to enable users to understand the impact that COVID-19 has had on the company's performance, position and prospects, the FRC felt that there was room for improvement.
Areas identified for improvement include:
- Going concern disclosures in both interim and annual financial statements should clearly explain the key assumptions and judgements taken in determining whether a company is able to operate as a going concern. In particular, any significant judgements taken in determining whether or not there is a material uncertainty in respect of going concern must be clearly documented.
- Assumptions used in determining whether the company is a going concern should be compatible with assumptions used in other areas of the financial statements.
- Sensitivity analysis or details of a range of possible outcomes should be provided for areas subject to significant estimation uncertainty.
- Arbitrary splitting of items such as impairment charges between COVID-19 and non COVID-19 financial statement captions are discouraged as such allocations are likely to be highly subjective and therefore unreliable. Existing accounting policies for exceptional and other similar items to COVID-19 related income and expenditure are expected to be applied consistently.
- Although IAS 34 ‘Interim Financial Reporting’ has only limited disclosure requirements, interim financial statements would benefit from more detailed disclosures explaining the way in which COVID-19 has impacted a company’s reported performance and future prospects.
The report encourages companies to ensure that not only mandatory disclosure requirements have been met but that sufficient explanations have been included within the financial statements to enable a user to understand how COVID-19 has affected both the amounts presented and the company's future prospects.
Our recent publication ‘On the board agenda – half year 2020’ provides further guidance on interim reporting and other matters to be considered by the board as we enter the second half of 2020, for example the effectiveness of internal controls and the impact of climate change.