Coronavirus: Britain’s watchdogs ease financial reporting rules
26 March 2020: The Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) have announced a series of joint actions to allow companies more time to publish results due to the ongoing impact of the coronavirus pandemic.
Their joint statement put forward unprecedented measures to address the difficulties companies currently face in making forward-looking judgments in their financial statements.
According to the statement, the actions have been proposed to “ensure that information continues to flow to investors and to support the continued functioning of the UK’s capital markets”. The measures include:
- A statement today by the FCA allowing listed companies an extra two months to publish their audited annual financial reports.
- Guidance issued by Companies House to permit a delay to the filing of accounts by companies. While companies will still have to apply for the three-month extension to be granted, those citing issues around COVID-19 will be automatically and immediately granted an extension via a fast-tracked process.
- Guidance from the FRC for companies preparing financial statements, a well as a bulletin for auditors covering factors to be taken into account when carrying out audits during the current COVID-19 crisis.
- Guidance from the PRA regarding the approach that should be taken by banks, building societies and PRA-designated investment firms in assessing expected loss provisions under IFRS9.
- A suggestion that companies consider delaying planned tenders for new auditors, even when mandatory rotation is due.
- Postponement of audit partner rotation – currently key audit partners are required to rotate every five years, but where there are good reasons this can be extended to a maximum of seven. This needs to be agreed with the audit committee of any affected entity and does not need to be cleared with or approved by the FRC.
- A reduction of FRC demands on companies and audit firms, such as the delay of consultations, pausing the writing of new letters to companies following annual reports and accounts reviews, adjusting its audit quality review work to reduce demands on audit firms, and pausing requests to firms on supervisory initiatives, such as operational separation of audit practices.
ICAEW Chief Executive Michael Izza has hailed the actions as a “pragmatic and proportionate” response.
“We are seeing an evolving programme of regulatory easing which demonstrates that the UK authorities – the Bank of England, FCA, PRA and FRC – are getting their priorities right in the fight against the economic impact of the epidemic,” said Izza.
“This will be a real help to auditors and businesses as they work together to protect employment and prosperity.”
The bulletin reminds auditors that they must obtain sufficient, appropriate audit evidence to support their audit opinion. However, in the current circumstances, they will need to consider the use of alternative procedures, including remote working and technology to obtain that evidence. This will not work in all circumstances and it is likely that there will be more modified opinions arising from the impact of COVID-19 on businesses.
In an accompanying statement to the measures, Executive Director of Supervision at the FRC David Rule said, “The current COVID-19 pandemic presents very real difficulties to companies and their auditors. The package of measures today is designed to give both the ability to consider the impact of COVID-19 more comprehensively in the light of government and other responses and provide markets and investors with the information they need to make informed decisions.
“The FRC is monitoring developments closely and maintaining frequent and regular contact with audit firms and other regulators. We will update our guidance as and when necessary, and withdraw these special measures when circumstances return to normal.”
For further information, you may like to look at the following:
- The company guidance
- The audit bulletin
- The joint regulators statement