As COVID-19, Brexit, global warming 2020’s big issues have triggered regulatory changes for this reporting season. Marianne Mau discusses the effects of the headline events, and the landscape ahead for preparing company financial statements.
As 2020 draws to a close, many will be wondering what 2021 will bring, perhaps with some trepidation. As individuals we are not expected to explain how the year has affected us or how well-equipped we are to face the future, but businesses are required to do exactly that. This article outlines new requirements and regulatory changes for the current reporting season, considers some of the broader reporting issues and signposts where to find guidance.
New reporting requirements
The good news is that there are no major new or amended standards coming into effect, and recent amendments in respect of interest rate benchmark reform and COVID-19-related rent concessions are designed to provide relief to preparers in the face of changing circumstances. Details of the amendments, together with illustrative examples, can be found in the faculty’s factsheets 2020 UK GAAP Accounts and 2020 IFRS Accounts.
New and existing accounting policies
Many businesses will be taking advantage of government support schemes for the first time and will, therefore, need to develop accounting policies for the recognition and measurement of government grants, for example, in respect of the Coronavirus Job Retention Scheme (in the UK) or other forms of grant.
Some existing accounting policies may need to be reviewed as the nature of transactions may have changed. For example, revenue will need to be recognised on a different basis if the nature of the service has changed or performance deferred.
You can find checklists and more detailed accounting guidance at icaew.com/coronavirus/financial-reporting.
The faculty’s factsheets, for example those on impairment and revenue recognition, may also prove useful guidance on some of the more challenging areas of the accounts.
Disclosures
Investors and other users will want information to explain how directors have assessed and responded to the implications of COVID-19, Brexit and other issues such as climate change. More than ever, there needs to be clear and entity-specific disclosures about judgements and uncertainties, particularly around impairment and going concern. Guidance on evaluating and reporting on going concern can be found at icaew.com/goingconcern
The faculty’s guide, How to improve disclosures when preparing accounts in accordance with FRS 102, identifies key areas where entities might need to consider the impact of COVID-19 when preparing disclosures within the annual report and accounts.
UK’s exit from the EU
In July 2020’s By All Accounts article, ‘Brexit takes a back seat’, we outlined what the financial reporting landscape would look like post-Brexit; at the time of writing the position remains the same. In their open letter to companies and auditors the Financial Reporting Council and Department for Business, Energy and Industrial Strategy provide further guidance, particularly for entities with interests or listings in the EU.
Exemptions
Current references to the ‘EU’ or ‘EEA’ in UK company law were due to be replaced on 31 December 2020 with references to the United Kingdom. This will be particularly relevant to companies with EU subsidiaries or parent companies seeking exemptions, for example from the preparation of group accounts and the filing of dormant company accounts. UK intermediate parents may still be able to claim exemption from the preparation of group accounts when their parent prepares consolidated accounts in an ‘equivalent’ manner, which would include accounts prepared in accordance with EU-adopted IFRS. At the time of writing there is still uncertainty as to whether UK-adopted IFRS and UK GAAP will be considered ‘equivalent’ by the remaining 27 EU member states.
Information and guidance on the implications of the UK leaving the EU can be found at icaew.com/Brexit and faculty members can access the factsheets and other guides mentioned here from the faculty’s homepage at icaew.com/frfac.
We’d welcome your feedback on any existing guidance, as well as thoughts on topics to cover in the future. Get in touch at frf@icaew.com.
