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Jul 23, 2020

FRC calls for improved forward-looking reporting around Covid-19

Companies should provide information on future prospects as well as current impact

As companies prepare their annual and interim reports, UK regulator the Financial Reporting Council (FRC) says firms should seek to provide ‘more extensive disclosure’ around the impact of Covid-19.

The council’s first thematic review of company reporting since the pandemic set in – studying reports published in March 2020 – notes that while many companies provided ‘sufficient information’ on performance, position and future prospects, they should be seeking to go further, with forward-looking, sector and company-specific information.

‘The best disclosures are those that give users of the accounts an accurate view and perspective on the current performance, but also the future prospects for that company,’ William Boyack, communications manager at the FRC, tells IR Magazine.

Interim results are a particular area where the FRC would like to see improvement, he says. As well as recommendations from its research, the FRC’s thematic review offers examples of what it considers to be best practice. 

One such example is soft drinks firm Britvic. Looking at page 20 of the UK-headquartered company’s interim results, the FRC highlights various points with notes such as: 
– Disclosure explains the scenarios modeled in light of Covid-19 and what they are most sensitive to
– Disclosures note the mitigating actions that can be taken to preserve liquidity
– Disclosure explains the physical steps the company has taken to ensure the safety of employees unable to work from home.

The thematic review covers a wide range of topics and offers numerous examples of better disclosure. In a section focused on dividends, the FRC highlights telecoms firm BT as an example. Looking at page 44 of the firm’s annual report, the FRC notes:
– Disclosure explains that dividends have been suspended
– Disclosure explains when the company expects to restore dividend payment
– Disclosure explains the reasons for the dividend suspension.

Boyack says, however, that the examples in the report are primarily companies with March year-ends, which was ‘very early on in the pandemic’, adding that ‘we’re conscious this is a developing area. It’s a very fast-moving situation. These examples will be particularly useful for companies that are currently preparing their results.’

So how should companies address the fast-moving nature of this situation in their reporting? Boyack points to a joint statement the FRC issued with the Financial Conduct Authority and the Prudential Regulation Authority.

‘It enabled an extension for companies in terms of their annual reporting, if necessary. We encouraged them to consider taking that up so they could properly account for different scenarios, different government support measures, and so on,’ he says. 

‘In terms of that sort of high-quality, forward-looking information we’ve called for, what we have said is that companies should be explaining the significant judgment estimates they’ve used, providing meaningful sensitivity analysis and including a range of possible outcomes on estimation uncertainty so they are putting that information into their reports.’

Encouraging firms to take note of its findings and improve reporting, the FRC says it will ‘challenge companies’ where it does not see, among other issues, ‘interim reports that provide enough information to enable a user to understand the impact Covid-19 has had on a company’s performance, position and future prospects.’

Garnet Roach

An award-winning journalist, Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of...