The statement recognises that investors and other stakeholders rely on financial reporting – backed by high-quality auditing and recognises that companies and their auditors currently face unprecedented challenges in preparing and auditing financial information.

In response to the current situation with Covid-19, the FCA, FRC and PRA have announced a series of actions:

• A statement by the FCA allowing listed companies an extra 2 months to publish their audited annual financial reports.
• Guidance 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 IFRS 9 Financial Instruments.
• Guidance from the FRC for audit firms seeking to overcome challenges in obtaining audit evidence.

The statement also recognises that 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 to include:

• 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 Covid-19 were clear.

Reporting timetable for listed companies

The FCA’s statement provides temporary relief for listed companies granting them an extra two months to publish their financial statements.

The FCA had also issued a statement on 21 March 2020, requesting companies observe a moratorium of at least 2 weeks on the issuance of preliminary announcements and signing of audit reports until 5 April 2020.

Further measures to allow companies and auditors to focus on the delivery of information to investors and the capital markets include guidance from Companies House permitting a delay to the filing of accounts by companies for up to three months and also a relaxation of a number of deadlines for regulatory reporting.

Guidance for preparers of financial statements

The FRC’s guidance is intended to highlight some key areas of focus for boards in maintaining strong corporate governance and provide high-level guidance on some of the most pervasive issues that should be considered when preparing annual reports and other corporate reporting.

With respect to corporate governance the key messages to board are to:

• develop and implement mitigating actions and processes to ensure that they continue to operate an effective control environment, addressing key reporting and other controls on which they have placed reliance historically but which may not prove effective in the current circumstances;
• consider how they will secure reliable and relevant information, on a continuing basis, in order to manage the future operations, including the flow of financial information from significant subsidiary, joint venture and associate entities; and
• pay attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is paid, not just proposed; and sufficient resources remain to continue to meet the company’s needs.

The guidance is intended to focus the minds of boards on those areas of reporting that are of most interest to investors and to encourage them to provide clarity on the use of key forward-looking judgements. The guidance covers:

• the need for narrative reporting to provide forward-looking information that is specific to the entity and which provides insights into the board’s assessment of business viability and the methods and assumptions underlying that assessment;
• going concern and any associated material uncertainties, the basis of any significant judgements and the matters to consider when confirming the preparation of the financial statements on a going concern basis;
• the increased importance of providing information on significant judgements applied in the preparation of the financial statements, sources of estimation uncertainty and other assumptions made; and
• judgement required in determining the appropriate reporting response to events after the reporting date and the extent to which qualitative or quantitative disclosures may be appropriate.

More detailed guidance is provided on the following specific areas:

• Corporate governance
• Management information
• Risk management and internal controls systems
• Dividends and capital maintenance
• Corporate reporting
• Strategic Report and Viability Statement
• Financial statements – going concern and material uncertainties, significant judgements and estimation uncertainty and events after the reporting date.

Guidance for auditors

The FRC’s bulletin for auditors provides guidance for auditors in relation to the impact of Covid-19 on audit engagements. The Bulletin contains a non-exhaustive list of factors auditors should be considering when carrying out audit engagements in the current circumstances, along with guidance on how they might be addressed. On 9 April the FRC updated its bulletin for auditors to include guidance on gathering evidence through remote means.

The key messages are:

• the need for more time, for both auditors and as importantly Boards/companies and management in preparing additional analysis;
• there is a likelihood of increased numbers of opinions with material uncertainties in relation to going concern;
• to issue an opinion not subject to disclaimer or a scope limitation always requires sufficient appropriate audit evidence; and
• a reminder that there are particular reporting obligations on auditors in certain circumstances.

On 14 April the FRC issued an updated Covid-19 statement reconfirming and clarifying the above. The short statement can be accessed on the FRC website here.

Click for (all links to FRC website):

• Press release
• Covid-19 joint statement from the FRC, FCA and PRA
• Guidance for companies
• Guidance for auditors
• Guidance from the PRA in assessing expected credit losses
• Covid-19 update statement from FRC (14 April 2020)