UK's FRC provides guidance for accounts' preparation amid COVID-19

The UK’s Financial Reporting Council (FRC) published Tuesday its review of the financial reporting effects of COVID-19.

The review builds on the guidance set out in a joint statement by UK regulators the FRC, the Financial Conduct Authority, and the Prudential Regulation Authority in late March and also the guidance issued by the FRC on 15 June.

The FRC highlights key findings on the effects of COVID-19 for a sample of interim and annual reports and accounts with a March period end and provides guidance for companies preparing their future annual and interim accounts.

The FRC’s executive director of supervision, David Rule, said the impact of the coronavirus differs across sectors, geographies, and individual companies. He added: “This review highlights how important it is for company reporting to explain not only how COVID-19 has affected company performance but also how it might affect a company’s future prospects.”

Guidance for companies

This guidance reminds companies that they should:

• Explain the significant judgements and estimates made in preparing their accounts and provide meaningful sensitivity analysis or details of a range of possible outcomes to support any disclosed estimation uncertainty.
• Describe any significant judgements made in determining whether there is a material uncertainty about their ability to continue as a going concern.
• Ensure that assumptions used in determining whether the company is a going concern are compatible with assumptions used in other areas of the financial statements.
• Apply the requirements of IAS 1, Presentation of Financial Statements, to any exceptional or similar items, with income statement sub-totals comprising only items recognised and measured in accordance with IFRS.
• Apply existing accounting policies for exceptional and other similar items to COVID-19-related income and expenditure consistently. Companies should not split income and expenses between COVID-19 and non-COVID-19 financial statement captions arbitrarily.
• Prepare interim reports that provide sufficient information to explain the impact that COVID-19 has had on their performance, position, and future prospects.

— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.