FRC publishes guidance for Audit Committee Chairs on the reporting implications of current economic volatility

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08 Mar, 2016

The Financial Reporting Council (FRC) has received requests for guidance on how economic uncertainty arising from matters such as volatile asset prices, falling oil prices, low interest rates and the UK's referendum on EU membership should be dealt with in annual reports. In response to these requests, the FRC has published a letter to Audit Committee Chairs highlighting the areas potentially affected.

Towards the end of 2015 the FRC published letters addressed to larger listed companies and smaller listed and AIM companies. In the light of further increases in economic uncertainty since those letters were written, they have published a supplemental letter addressed to all Audit Committee Chairs. This letter highlights the following potential issues:

  • elements of the strategic report that were written some time ago should be carefully reviewed to ensure that they reflect the latest circumstances;
  • there may be a wider range of potential outcomes relating to issues identified as principal risks, necessitating increased disclosure around the sensitivities considered and judgements made;
  • information that has come to light after the balance sheet date, for example regarding asset valuations, should be carefully considered to determine whether it has an impact on the reported numbers or on the disclosures made; and
  • in extreme cases, these events may have a material impact on the appropriateness of the going concern basis of accounting, or give rise to a material uncertainty regarding this.

The press release and full letter can be obtained from the FRC website.

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