Financial Reporting Council review of financial reporting effects of Covid-19

Of interest to all involved in reporting

The Financial Reporting Council (FRC) has completed its first thematic review of company reporting since the onset of COVID-19 pandemic looking at the way in which company reporting has addressed the pandemic.

The 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.

In March 2020, the Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) published a joint statement allowing listed companies extra time to publish their annual reports and providing guidance on how financial statements should be prepared “in the current uncertain environment.” This review of a sample of March interim and annual reports is intended to provide guidance and good practice examples for companies as they prepare their accounts.

Principal recommendations are that companies should:

  • explain the significant judgements 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 full review, which runs to 55 pages, but is worth the read, can be found here

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