November 12, 2020
The Financial Reporting Council (FRC) has today published its annual end of year letter to CEOs, CFOs and Audit Committee Chairs setting out its reporting expectations for preparers of reports and accounts for the year ahead.
This year’s letter is of particular significance given the continuing backdrop of economic uncertainty and the impact of Covid-19 on the scope and timing of company reporting, while companies are also dealing with commercial and operational change associated with the UK’s exit from the European Union.
The letter covers what disclosures should be made to understand the impact of particular events on the company’s position and financial performance, as well as any judgements involving significant estimation uncertainty. The FRC expects increased disclosure of relevant sensitivities or ranges of possible outcomes to help users understand the assumptions underlying those estimates and the extent of the changes that might be reasonably possible in the next twelve months.
Given that public health measures taken in response to Covid-19 are likely to continue into the first quarter of 2021, it’s clear these will present ongoing challenges for both finance teams and auditors. Therefore, the FRC encourages boards to carefully consider whether they should lengthen their reporting timetables for 2021, making use of the extensions to reporting deadlines which remain in place.
Regarding the impact of the UK’s EU exit, the FRC expects companies to explain company-specific risks and uncertainties, including the potential impacts on different parts of their business and effects on the financial statements.
The FRC also outlines its expectations of companies’ climate disclosures including the impact of climate change on their activities, their own environmental impact as well as explanations of how directors are discharging their section 172 duties.
FRC CEO, Sir Jon Thompson said:
“Users of company accounts continue to expect high-quality reporting on a range of pressing issues including climate change, the UK’s EU exit and workforce engagement.
The economic uncertainty caused by the Covid-19 pandemic has only heightened the need for companies to provide clear disclosures that allow users of accounts to properly understand a company’s position, financial performance and outlook.
The FRC’s annual letter is designed to help companies and their auditors meet these expectations and deliver high quality reporting for all of their stakeholders.”