First company reporting thematic review since onset of Covid-19 highlights future guidance needs
The Financial Reporting Council’s thematic review found that although companies provided sufficient information to enable a user to understand the impact Covid-19 had on their performance, position and future prospects, some - particularly interim reports - would have benefited from more extensive disclosure.
Building on the guidance contained in the joint regulators statement (published on 26 March), this review of a sample of March interim and annual reports and accounts includes guidance and better practice examples for companies currently preparing their annual and interim accounts.
The FRC reminds companies that they should:
- explain the significant judgments and estimates made in preparing their accounts and provide meaningful sensitivity analysis or details of a range of possible outcomes to support any disclosed estimation uncertainty.
- describe any significant judgements made in determining whether there is a material uncertainty about their ability to continue as a going concern.
- ensure that assumptions used in determining whether the company is a going concern are compatible with assumptions used in other areas of the financial statements.
- apply the requirements of IAS 1 to any exceptional or similar items, with income statement sub-totals comprising only items recognised and measured in accordance with IFRS.
- apply existing accounting policies for exceptional and other similar items to Covid-19 related income and expenditure consistently and should not split income and expenses between Covid-19 and non Covid-19 financial statement captions arbitrarily.
- prepare interim reports that provide sufficient information to explain the impact that Covid-19 has had on their performance, position and future prospects.
The FRC’s executive director of supervision David Rule said: “The impact of the Covid-19 pandemic on businesses is pervasive but also differs across sectors, geographies and individual companies.
“This review highlights how important it is for company reporting to explain not only how Covid-19 has affected company performance but also how it might affect a company’s future prospects. Drawing on examples, we provide further guidance and good practice recommendations to support both companies and users of company reporting during this challenging period.”
A link to the review can be found here.