FRC provides guidance on going concern, risk, viability reporting
UK regulator stresses the value of clear disclosure of actions taken ‘at different stages in the recovery process’.
The Financial Reporting Lab of the UK Financial Reporting Council (FRC) recently issued two guides to help companies with annual reporting as yearend approaches.
In COVID-19 — Resources, Action, the Future and COVID-19 — Going Concern, Risk and Viability, the FRC looks back to its June guidance on corporate reporting, discusses recent developments, and looks forward as the impacts of the coronavirus continue.
On cash and liquidity, the FRC in COVID-19 — Resources, Action, the Future said that as the crisis extends, “cash might again become an issue for companies even if they took actions earlier”. More cash may be needed to fund current operations or for new opportunities, the regulator said. “Therefore, understanding the evolving cash position, the uses of the cash accessed, and the company’s plans for that cash become even more important.”
As guidance for the future, the FRC said: “Providing clear disclosure of the actions taken by management at different stages in the recovery process is very useful.” Some companies, it said, have achieved this through use of timelines to indicate actions taken in the pre- and post-lockdown periods. This information should also be provided as further lockdown measures are put in place by governments or as recovery continues, the FRC added.
Going concern, risk, and viability
In COVID-19 — Going Concern, Risk and Viability, the Financial Reporting Lab said: “It is noticeable that information [on going concern and viability] presented in interim and quarterly information is far less detailed than that provided in annual reports.” Given the level of uncertainty, the FRC added, companies should provide a detailed update at any time they report to the market.
On risk, the FRC’s report said: “As we move into the longer term, the longevity and nature of impact on the individual components of risk will be different.” It’s important to understand the impacts, actions, and mitigations at this component level — for example, government regulation, lockdowns, the effect on employees, securing funding and financing, and the general economic impact — rather than “pandemic risk” as an individual risk, the regulator added.
— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.