FRC publishes letter to Audit Committee Chairs and Finance Directors on the UK's exit from the EU

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27 Sep, 2019

The Financial Reporting Council (FRC) has published a letter to Audit Committee Chairs and Finance Directors setting out some of the actions companies should consider in advance of the UK’s exit.

The FRC letter suggests a number of the most critical generic actions companies should consider in advance of the UK’s exit from the European Union. 

In relation to corporate reporting, the FRC is encouraging companies to provide disclosure which distinguishes between the specific and direct challenges to their business model and operations from the broader economic uncertainties which may be a consequence of the UK’s exit from the EU, and which may apply when companies report. Where there are particular challenges posed, the FRC expects these to be clearly identified and for management to describe any actions they are taking, or have taken, to manage the potential impact. In some circumstances this may mean recognising or remeasuring certain items in the balance sheet.

The FRC expects that many companies will want to consider a wide range of reasonably possible outcomes when performing sensitivity analysis on their cash flow projections and which should be disclosed and explained. Not all companies will require extensive disclosure, but where sensitivity or scenario testing indicates significant issues, relevant information and explanation should be reflected in the appropriate parts of the annual report and accounts, for example in the impairment disclosures. It will be for companies to decide whether exiting the EU impacts their statements on viability and even their ability to continue as a going concern. Guidance on this is set out in the Financial Reporting Lab’s 2017 report on Risk and Viability reporting.

The letter is available on the FRC website.

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