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FRC announces thematic reviews for 2020/2021

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16 Dec 2019

The Financial Reporting Council (FRC) has announced the corporate reporting and audit quality thematic reviews that it will undertake in 2020/21.

The FRC's Corporate Reporting Review team will supplement its routine reviews of corporate reporting with four thematic reviews which will "identify scope for improvement, as well as areas of better practices, in a number of areas of stakeholder interest".  The areas of focus for the FRC's Audit Quality Review team have also been announced.

For corporate reporting, the FRC will undertake thematic reviews in the following areas:

  • a review of disclosures made under IFRS 16 Leases in the first year of implementation;
  • cash flows and liquidity disclosures.  This thematic review will focus on companies' disclosures of cash flows and liquidity risks, exploring in more detail issues identifies in the CRR's routine work and the themes of the Financial Reporting Lab's recently published report Disclosure on the sources and uses of cash.  The thematic review will also focus on how the presentation of the cash flow statement and disclosures can help readers assess the ability of a company to generate cash flows and the cash flows needs of the company.  The FRC has identified a number of areas that can be improved and expects:
    • basic compliance with IAS 7 Statement of Cash Flows and the elimination of what it calls 'basic' errors
    • disclosure of accounting policies for complex transactions where the cash flow presentation is judgemental and, where relevant, any significant accounting judgements applied in the cash flow statement;
    • company specific disclosures of liquidity risk consistent with disclosures given for going concern and the viability statement;
    • where material, disclosure of supplier financing arrangements, including the impact on cash flows and the presence of any concentrations of liquidity risk;
    • disclosure of what constitutes cash and cash equivalents, including any restrictions on the availability of cash; and
    • compliance with the ESMA Guidelines for cash flow based Alternative Performance Measures (‘APMs’).
  • a deeper dive into certain findings from the recent thematic review on the application of IFRS 15 Revenue from Contracts with Customers; and
  • the effects of the decision to leave the EU on companies’ disclosures.
  • reviewing company disclosures with respect to climate change.

As part of the FRC’s audit monitoring programme, the Audit Quality Review (AQR) team will consider audit work on:

  • going concern and the viability statement;
  • other information in the annual report;
  • long-term contracts;
  • the impairment of non-financial assets;
  • fraud risk; and
  • the application of IFRS 15 and 16.

The FRC plans to focus particularly on annual reports and audits in the financial services, retail, construction and manufacturing sectors. 

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