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UK’s FRC: High-quality disclosures needed to reflect impact of Covid-19

The UK’s Financial Reporting Council’s (FRC) has completed its first thematic review of company reporting since the onset of the Covid-19 pandemic.

The review found that although companies provided sufficient information to enable a user to understand the impact Covid-19 had on their performance and future prospects, some - particularly interim reports - would have benefited from more extensive disclosure.  

The thematic review, which used 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 said that companies should remember to:

  • 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 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.

FRC 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.”

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