2020/21 Reporting Season: FRC sets out 20/21 company reporting expectations

Financial Reporting Council’s (FRC) annual end-of-year letter to CEOs, CFOs and audit committee chairs arrives amid a backdrop of turbulence and uncertainty, with businesses reeling from the impact of COVID-19 and preparing for the UK’s exit from the European Union. 

Companies should refer to the guidance in reporting information relating to providing clear and transparent information during the pandemic. It highlights a report by the FRC Lab that highlights information investors want to see in reports: 

• currently available cash and other resources;
• key actions management has taken and is planning to take;
• the longer-term impacts of COVID-19 on the business model and strategy; and, 
• the board’s assessment of going concern and viability, as well as the methods, judgments and assumptions underlying the assessments. 

The FRC expects preparers to consider the principles IAS 1, ‘Presentation of Financial Statements’ and include disclosures that allow users to understand the impact of events and conditions on a company’s financial performance. Narrative disclosures should quantify the effects of COVID-19, but the FRC ‘strongly discourages’ splitting of items between COVID and non-COVID-related items, as this would be highly subjective.

All UK companies that use Alternative Performance Measures should continue to apply European Securities and Markets Authority guidelines, “As they reflect best practice in the reporting of such measures, notwithstanding the UK’s exit from the European Union.”

On the UK’s exit from the EU, the FRC expects reports to explain company-specific risks and uncertainties, including the potential impacts on different elements of the business and their effects on financial statements. 

The letter also includes expectations on non-financial reporting around climate change and what should be included in Section 172 statements, encouraging companies to report on the following:

• the effectiveness and outcomes of their engagement;
• the oversight that boards have over delegated engagement;
• how feedback has been used within the decision-making process;
• difficult decisions, rather than just focusing on positive engagement;
• how stakeholders are considered strategically and how such consideration is contributing to companies’ long-term success; and,
• implications of the decisions on both long-term success and stakeholders themselves. 

“The combination of the pandemic, Brexit and new reporting and auditing requirements makes this an exceptionally challenging reporting season for all concerned,” says Nigel Sleigh-Johnson, Technical Strategy Accountability Group Director for ICAEW’s Audit and Assurance Faculty. 

“Explaining well the basis of the key judgments and estimates required has never been so important. The FRC guidance usefully draws together a range of issues and considerations that should be front of mind for those preparing annual reports in the coming months.” 

Commenting on the letter FRC chief executive Jon Thompson said: “The economic uncertainty caused by the COVID-19 pandemic has only heightened the need for companies to provide clear disclosures that allow users of accounts to properly understand a company’s position, financial performance and outlook. The FRC’s annual letter is designed to help companies and their auditors meet these expectations and deliver high-quality reporting for all of their stakeholders.”

Watch ICAEW CEO Michael Izza in conversation with Sir Jon Thompson.