Public policy interventions made in 2020 provided more time for the work necessary to ensure that published financial information continues to be of the quality that preparers and users of financial information expect.
Along with these measures, the FCA, Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) made a joint statement[1] that encouraged investors, lenders and other users of financial statements to take into account the unique set of circumstances arising from the coronavirus pandemic. The need to take the circumstances arising from the coronavirus pandemic into account remains relevant today.
The measures in place
The FCA and FRC would like to remind companies of the measures[2] that remain valid today and which provide some flexibility. This includes allowing listed companies an additional two months to publish their audited annual financial reports. This is because we 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 our previous statements, the FCA and FRC would like to encourage 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
We also alert 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, 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[3] 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. Further guidance was also included in the FRC’s year-end letter[4] to CEOs, CFOs and Audit Committee Chairs.
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 remind audit firms of their regulatory obligations to report, to the appropriate regulator, matters arising from their work on a timely basis.
Please refer to the FCA’s Dear CEO letter [5]published in August 2020, and the FRC’s ISA (UK) 250 Section B[6] - The auditor’s statutory right and duty to report to regulators of public interest entities and regulators of other entities in the financial sector.