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2020/21 Reporting Season: how to achieve high-quality reports

10 December 2020: As companies prepare to embark upon the 2020/21 reporting season, questions around judgments and estimates, impairments and financial instruments have topped the list of problematic financial reporting areas, with the effects of COVID-19 and Brexit likely to pose additional reporting headaches.

That’s the report card from industry regulator the Financial Reporting Council (FRC), which has outlined some of the key financial reporting sticking points identified through their monitoring activities in a recent webinar hosted by ICAEW’s Financial Reporting Faculty.

The faculty’s online event, presented by Malcolm Millar, Case Director in the FRC’s Corporate Reporting Review function and Julia Loveland, a Senior Manager in the financial reporting technical team at Grant Thornton, touches on common challenges facing preparers of accounts and offers practical tips on how to achieve high-quality reporting.

According to Millar, FRC’s analysis shows the top 10 topics raised had shown remarkable consistency over the past few years, although revenue and financial instruments have climbed up the list due to the introduction of new International Financial Reporting Standards, which had prompted a flurry of queries. 

Despite progress in some areas, the FRC’s Millar warns that companies should not approach corporate reporting as a box-ticking exercise. “We want them to take a step back and think about the overall objective of disclosures, which is to provide more information on relevant areas of reports and accounts,” he says.

In particular, Millar says there is not always enough information in the Strategic Report about the balance sheet, cashflow and significant transactions. “We would like to see more information cross-referenced in the accounts,” Millar adds.

As a result of COVID-19, Millar says he expects companies to reassess the principal risks and uncertainties they face in the current economic environment. “We’re expecting to see companies explain if the nature of the risks has changed and if the mitigating factors have changed.”

FRC’s thematic review of the impact of COVID-19 found that while most companies touched on the impact of the pandemic on performance, position and prospects, “judgments taken in determining going concerns status were not adequately disclosed,” Loveland warns. 

Even though a growing number of companies are providing narrative reporting on climate-related issues, often only minimal legal requirements are being met despite calls by users for additional disclosures to inform their decision-making. “The FRC thematic review found the best reporting was clear and specific to the company, explaining what the key risks were and their likely impact,” Loveland says. 

“We expect to see companies and their auditors thinking about what climate-related information is relevant to those who are reading the accounts,” Millar adds.

And despite ongoing uncertainty around a post-Brexit trade deal between the UK and the EU, companies should still disclose as much as they can, based on their understanding of how they might be affected, Millar says. “We want specific information rather than boilerplate statements around general uncertainty,” he says.

As for practical advice for accounts preparers, early preparation for IFRS amendments that will be adopted in 2020/21 is key. Similarly, companies should avoid leaving narrative reporting to the last minute. 

“Remember the strategic report needs to be fair, balanced and comprehensive,” Loveland adds. “Think about how the impact of Brexit and COVID-19 will be reported in the front end but also in the financial statements and make sure everything is consistent.” 

ICAEW’s Preparing for the 2020/21 reporting season webinar is the latest in a series of financial reporting and audit guidance produced by the Financial Reporting Faculty and Audit and Assurance Faculty. ICAEW members can hear the webinar in full here.

Wellbeing in the 2020/21 reporting season

With the 2020/21 reporting season likely to be difficult for many, ICAEW reminds members of the resources available to them and their families from CABA.

The Audit and Assurance Faculty are sharing their webinar on maintaining wellbeing during audit busy season broadcast on 11 January 2021. Watch the recording.