The coronavirus (Covid-19) pandemic is an unprecedented situation but
it is important to recognise that, while the reduction in activity
associated with coronavirus could be sharp and large, it is likely to
rebound sharply when social distancing measures are lifted. In
addition, in the intervening period, while activity is disrupted,
substantial and substantive government and central bank measures have
been put in place in the UK and internationally to support businesses
and households. These measures, which have been evolving rapidly and
could evolve further, are expected to remain in place throughout the
period of disruption.
Successful and sustainable businesses
underpin our economy and society by providing employment and creating
prosperity. Equity and debt capital markets play a vital role
providing finance to these businesses and will aid the recovery.
Governments and regulators around the world remain focused on keeping
capital markets open and orderly.
Capital markets rely on
timely, accurate information. Investors and other stakeholders rely
on financial reporting – backed by high-quality auditing. However,
companies and their auditors currently face unprecedented challenges
in preparing and auditing financial information.
to the current situation, the Financial Conduct Authority (FCA),
Financial Reporting Council (FRC) and Prudential Regulation
Authority (PRA) are today announcing a series of actions to ensure
information continues to flow to investors and support the continued
functioning of the UK’s capital markets. This includes:
statement today by the FCA allowing listed companies an extra 2 months
to publish their audited annual financial reports.
from the FRC for companies preparing financial statements in the
current uncertain environment. This is complemented by guidance from
the PRA regarding the approach that should be taken by banks, building
societies and PRA-designated investment firms in assessing expected
loss provisions under IFRS9.
Guidance from the FRC for audit
firms seeking to overcome challenges in obtaining audit evidence.
In these extraordinary circumstances, previous market
practices relating to the timing and content of financial information
and the audit work that is done must change. These changes are likely
Modified audit opinions where auditors have been
unable to gather the necessary audit evidence to complete the audit in
full: for example, by limiting the scope of the audit opinion.
Given the uncertainty about the immediate outlook for many
companies, more audited financial statements that include disclosures
that management is aware of material uncertainties related to events
or conditions that may cast significant doubt upon the entity’s
ability to continue as a going concern.
Changes to timetables
for publication of financial information that had been set before the
full implications of coronavirus were clear.
The FCA, FRC and
PRA strongly encourage investors, lenders and other users of financial
statements to take into account the unique set of circumstances
arising from Covid-19 which might result in uncertainty in companies’
financial positions, potential delays in the provision of financial
information, the need for auditors to undertake additional work to
support their audit opinions and the increased use of modified audit
opinions, including qualifications arising from scope limitations.
UK banking authorities (Financial Policy Committee, Bank of
England, Monetary Policy Committee and Prudential Regulation
Committee) have acted to reduce pressure on banks to restrict the
provision of financial services, including the supply of credit and
support for market functioning. Noting these actions, the FCA, FRC and
PRA strongly encourage lenders and other parties to take into account
these circumstances in responding to potential breaches of covenants
arising directly from the coronavirus pandemic and its consequences,
given the common goal that the financial system should be a source of
strength for the real economy during this challenging period.
1. Reporting timetable for listed companies
the challenges facing both auditors and listed companies, the FCA has
today published a statement permitting a delay in the publication of
audited annual financial reports from 4 to 6 months from the end of
the financial year. This policy is intended to be temporary while the
UK faces the extreme disruption of the coronavirus pandemic and its
aftermath. We will keep its application under review. When the
disruption abates we will consider how best to end the policy in a
fair, orderly and transparent way.
Investors will still
receive timely information on which to base their decisions as
companies will still need to observe their other disclosure
obligations, in particular those concerning inside information under
the Market Abuse Regulation, recognising that the global pandemic and
policy responses to it may alter the nature of information that is
material to business prospects.
The coronavirus pandemic is
causing companies of all types to re-think and re-plan almost all
aspects of their business and operations. We recognise that some
companies, given the nature of their operations, may feel it
appropriate to maintain the 4 month calendar, but we would urge all
those companies that feel it appropriate to utilise the additional 2
months to do so. We urge market participants not to draw undue adverse
inferences when companies make use of the extra time our temporary
relief gives them, for a great many companies it will be a sensible
decision to make in unprecedented times.
We strongly recommend
that listed companies review all elements of their timetables for
publication of financial information in order to make appropriate use
of the time available within regulatory deadlines to ensure accurate
and carefully prepared disclosures. Such timetables will likely have
been set before the full implications of Covid-19 and the public
policy response to it were clear. Companies should take note of the
time available to them and they should feel supported in using it.
Further measures to allow companies and auditors to focus on
the delivery of information to investors and the capital markets
Delaying the filing of accounts by companies -
Companies House has issued guidance to permit a delay to the filing of
accounts at Companies House by companies. While companies will still
have to apply for the 3-month extension to be granted, those citing
issues around coronavirus will be automatically and immediately
granted an extension via a fast-tracked process. For example, this
will permit applications for delayed filing of financial statements
for subsidiary companies of listed entities.
auditor tenders. Companies are encouraged to consider delaying planned
tenders for new auditors, even when mandatory rotation is due. The FRC
has a power in law to extend certain mandates, where the initial
appointment commenced after 17 June 1994 by up to 2 years in
exceptional circumstances. (Applications should be sent to
Postponement of audit partner rotation –
Key audit partners are required to rotate every 5 years. However,
where there are good reasons, for example to maintain audit quality in
current circumstances, the rotation can be extended to no more than 7
years. This needs to be agreed with the audit committee of any
affected entity and does not need to be cleared with or approved by
Reduction of FRC demands on companies and audit
firms. The FRC will, where possible, delay or extend the deadlines
for consultations; it has paused for at least one month writing new
letters to companies following its review of their annual reports and
accounts; it is considering how it can adjust its audit quality review
work to reduce demands on audit firms; and it will pause for at least
one month requests to firms on supervisory initiatives, such as
operational separation of audit practices.
reporting deadlines for public sector bodies. HM Government is
revising deadlines for reporting by a range of public bodies, which
will also provide some relief to their auditors. (The UK Government
has announced that the deadline for the publication of audited
principal authority accounts has been extended to 30 September 2020.
For principal local Government councils, changes will made to extend
the deadline for unaudited accounts to be signed and published to 30
June 2020. Audited accounts for health bodies and Trusts and Clinical
Commissioning Groups are now due to be published on 25 June 2020,
instead of 31 May 2020. In addition, the time allowed for delivery of
unaudited accounts has been extended to 27 April 2020, and the
implementation of IFRS16 has been deferred until the year ended 31
March 2021. ) For example, the deadline for publication of final
report and accounts of local government authorities has been extended
by two months to the end of September.
2. Guidance for
Many companies preparing financial statements are
facing unprecedented uncertainty about their immediate prospects in an
environment that may challenge or disrupt their usual management and
To maintain effective decision making
in the interests of the company, their workforce and other business
partners, the FRC encourages Boards to:
Develop and implement
mitigating actions and processes to ensure that they continue to
operate an effective control environment: in particular, addressing
any key reporting and other controls on which they have placed
reliance historically, but which may not prove effective in the
Consider how they will secure reliable
and relevant information, on a continuing basis, in order to manage
their future operations and those of their workforce and suppliers,
including the flow of financial information from significant
subsidiary, joint venture and associate group entities.
attention to capital maintenance, ensuring that sufficient reserves
are available when the dividend is made, not just proposed.
Making forward-looking assessments and estimates is
particularly difficult currently. The FRC has prepared guidance for
companies intended to help them make key forward-looking judgements as
consistently as possible.
The FRC’s Financial Reporting Lab
has been seeking feedback from investors on the disclosures that they
would like to see and has produced a short infographic. This work has
highlighted a desire for disclosures from companies on the financial
resources available to them including cash and access to additional
finance (such as committed bank lines), other financing and non-
standard debt arrangements (such as supply chain financing).
Investors have also pointed out the importance of forward
looking information which explains how resilient the company’s
business model is to the current events, and to scenarios which are
now reasonably plausible: for example, how long they are likely to be
able to sustain their operations based upon these scenarios, and what
mitigating actions they may be able to take to extend these
timeframes. Information about such stress testing and reverse stress
testing is particularly valuable in the current environment, and will
help support both the going concern assessment of the company and its
In addition, the PRA has provided
guidance to UK banks, building societies and PRA-designated investment
firms regarding the application of IFRS9 including the extent to which
payment holidays should constitute an event of default or should
otherwise attract a lifetime expected loss provision. The PRA has
also provided guidance to lenders on how they should respond to
covenant breaches related to coronavirus, as follows:
PRA] would expect lenders to consider the need to treat [covenant
breaches that arise from Covid-19 related matters that are of a
general nature or are firm-specific but unrelated to the solvency or
liquidity of the borrower] differently compared to uncertainties that
arise because of borrower-specific issues and in doing so consider
waiving the resultant covenant breach. [The PRA] would expect firms to
do so in good faith and not to impose new charges or restrictions on
customers following a covenant breach that are unrelated to the facts
and circumstances that led to that breach. ”
3. Guidance for
In order to be able to give an audit opinion, the
auditor must obtain sufficient, appropriate audit evidence. However,
the current circumstances create obstacles to carrying out audit
procedures arising from restrictions over accessing information
electronically in some jurisdictions, social distancing measures taken
in many countries; and the challenges posed by the current uncertain
economic environment. Given these concerns, the FRC has issued
guidance to auditors intended to provide practical help.
Disclaimer: RegRadar is not endorsed nor affiliated with the source authority. This material does not constitute any advice. This material is machine translated and does not constitute an official translation by the source authority. Please note that the information can be obtained free of charge through the source website.