Newsflash – Further updates from the SEC and the FRC on responding to COVID-19

April 2020

This newsflash covers three regulatory announcements made immediately before the Easter holiday: one from the SEC and two from the FRC.

  1. SEC stresses the importance of disclosure for investors, markets and the fight against COVID-19

    Acknowledging that public companies will be issuing earnings releases and conducting analyst and investor calls in the coming weeks, the SEC is urging companies to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning.

    In particular company disclosures should respond to investor interest in:
    • where the company stands today, operationally and financially (including current liquidity positions and expected financial resource needs);
    • how the company’s COVID-19 response, including its efforts to protect the health and well-being of its workforce and its customers, is progressing; and
    • how its operations and financial condition may change as all efforts to fight COVID-19 progress. Historical information may be relatively less significant.

      The SEC statement notes that producing comprehensive financial and operational reports may present challenges for companies in the current circumstances, particularly reports that include forward-looking information. Companies are encouraged to use the legal protections offered by the safe-harbours for such statements and also to note that good faith attempts to provide appropriately framed forward-looking information will not be second guessed by the SEC.

      Read the full SEC statement.
  2. FRC confirms it is maintaining business as usual as much as possible across full range of activities

    Whilst FRC staff continue to work from home and to monitor the impact of COVID-19 on governance, reporting and auditing developments, other FRC activities are being maintained:

    The Audit Quality Review team continues to finalise its inspection work for the 2019/20 cycle with the aim of publishing the results in July for the largest audit firms and in the autumn, for the profession as a whole, in the Developments in Audit publication. Timetables for the 2020/21 inspection and supervision work have been extended to reduce the burden on the audit firms at this time.

    The Corporate Reporting Review team continues to correspond with companies on issues under discussion as at 26 March but has paused issuing new letters to companies. Work has commenced on a number of thematic reviews.

    Investigations and enforcement action continue to progress while taking the current situation into account both when requesting information and documents and in responding to requests for timing extensions.

    The Financial Reporting Lab is focusing on providing insight into emerging reporting issues arising from Covid 19 and reviewing climate-change reporting under TCFD to contribute to the FRC’s wider thematic review. It will also bring forward a review of s172 statements to identify good practices in reporting.

    The Corporate Governance and Stewardship Team continues to engage with companies, investors and other stakeholders to understand the most important issues affecting them.

    The Professional Oversight Team continues to work with BEIS on preparations for equivalence and adequacy negotiations with the EU and in developing the post Transition Period regime.

    The FRC continues to make progress on the recommendations of the Kingman, CMA and Brydon reviews to ensure plans are well advanced by the time BEIS publishes its consultation on audit market reform.

    Recognising that stakeholders face challenges during this period requests for participation on projects and the publication of additional consultations have been paused unless they are required to meet legal, regulatory or international obligations.

    Read the full FRC statement.
  3. FRC updates its guidance for auditors to include material on gathering evidence through remote means

    Where audit evidence would normally be gathered through physical means (observation or inspection), the current restrictions mean that these approaches are no longer feasible. The FRC has updated its guidance to make clear that the auditor can instead consider additional audit procedures that could be performed to enable the auditor to obtain sufficient and appropriate evidence.

    In addition the guidance states that determining whether additional or alternative procedures are necessary, and if so, which procedures are to be performed, needs to be carefully considered by the auditor on a case by case basis and will be dependent on the applicable facts and circumstances. It is a judgment call the auditor needs to make, considering explicitly whether evidence obtained electronically is reliable in the circumstances, and is not subject to manipulation.

    Read the full FRC guidance.

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