2020/21 Reporting Season is upon us: keep an eye out for disclosures

Reporting during the pandemic was never going to be easy, but companies may take comfort that they are not alone. And as more companies issue their accounts, examples are growing of how to report on unfamiliar circumstances. For businesses that will be reporting later in the year, this is a good opportunity to look at how other companies are approaching these issues in their accounts. Such examples could help with planning and thinking in good time about issues that will need to be tackled in the annual accounts. 

“As businesses prepare their financial reports for this extraordinary year, they will need to address the many anomalies and uncertainties the pandemic has brought with it,” comments John Boulton, Director, ICAEW Technical Policy.

“It’s vital that businesses get this right so they can produce accurate and consistent reports.” To help, ICAEW has published Assessing the impact of COVID-19 on business strategy, which aims to address these issues.

Published annual reports represent another valuable resource. “There’s no substitute for real-life examples,” adds Boulton, and as we rapidly move through reporting seasons those examples are multiplying. “Having a good knowledge of how other businesses in your sector are reporting is a valuable asset”.

But with listed company annual reports often running to hundreds of pages, identifying the disclosures that report on specific issues related to the pandemic requires careful reading. So where should you start?

Boulton suggests six particularly relevant areas. “The key here is having a clear idea in advance of where the accounts will likely be affected. That can guide further research – including looking at how issues have been tackled by other companies in their reports. 

Key areas include:

1. Keep an eye out for viability statements. What disclosures are they making around how they’ve assessed viability? What do they say about going concern and what questions do they say they’ve asked to assure themselves that they are a going concern?
2. Look out for disclosures around government support. How are other companies reporting which schemes they have accessed and what the impact is on their businesses of accepting this support?
3. Identify what disclosures there are around fixed assets. Have any assets been impaired? If so, what do the related disclosures say about this? Have the company’s accounting policies around fixed assets changed?
4. See what the company has said about any rent concessions it may have received from landlords. In the midst of the pandemic, the International Accounting Standards Board issued a temporary amendment to IFRS 16 Leases to account for concessions such as rent holidays or temporary rent reductions. How do other companies report the circumstances where they have paid less rent than envisaged in the lease contract?
5. Review the disclosures for receivables. Some businesses will be part-way through work they have contracted to undertake that might have been delayed or curtailed in the pandemic. How has that situation been disclosed? The disclosures might help users understand that balances are recoverable.
6. Borrowing and disclosures around debt will be key. What do they reveal about the company’s headroom to borrow further? How leveraged is the company and what is its debt to assets ratio?

“It’s important that those preparing annual reports have as much information and support to hand as possible,” concludes Boulton. “We’re concerned that this reporting climate will be very challenging, so we’ve been designing resources to help businesses make sure they are asking the questions that matter and are properly considering the different impacts of coronavirus. 

Assessing the impact of COVID-19 on business strategy is ICAEW’s latest resource designed to help with the challenging reporting season and adds to our series of articles on the 2020/21 Reporting Season.