2020/21 Reporting Season: the biggest considerations for preparers
10 December 2020: In a reporting season like no other, ICAEW’s Financial Reporting Faculty has published guidance on areas where preparers should pay particular attention.
Pandemic restrictions imposed by the government may affect year-end processes, including the audit of the financial statements. Changes to the FRC’s Ethical Standard also mean that some companies may not be able to rely on their auditors for help in preparation of the accounts.
Not all businesses are affected to the same degree: there have been opportunities as well as challenges. It is important that the accounts fairly reflect company performance and prospects. Preparers need to think ahead about how they can make the audit go smoothly and allow auditors to get what they need as fast as possible. Preparing and auditing accounts will take longer and auditors will be carefully scrutinising the evidence presented to them.
Here are some critical areas that may need more consideration than in previous years, although the circumstances of individual companies may vary their requirements:
Going concern, liquidity and solvency
Perhaps the sharpest focus of all will be on information that supports the going concern assumption and related information about liquidity and cashflows. A revised auditing standard is likely to increase the extent of procedures that auditors will need to perform.
As circumstances change, companies may need to apply new or revise existing accounting policies, for example government grants if the business has used CJRS or CBILS. IFRS 16 Leases and FRS 102 have been amended to cater for COVID-19-related rent concessions. Testing for impairment is likely to be more commonplace than in previous years.
Presentation and disclosure
Companies will have to consider the impact COVID-19 has had on its business, the use of government assistance and how that might be presented. Care will need to be taken in drafting clear, transparent and entity-specific disclosures.
The ‘front end’ of the annual report is very much in the spotlight. There are some new requirements to contend with, such as streamlined energy and carbon reporting (SECR). S172 Statements are not new but likely to be subject to close scrutiny as the FRC has said it is looking for improvements in this area.
Dividends and other distributions
Directors will also need to consider whether they can lawfully pay dividends and whether they should.
These issues and more are considered in greater depth, together with signposts to where more information can be found, in the full guidance from ICAEW’s Financial Reporting Faculty: Planning for the 2020/21 reporting season - Practical help for preparers.