Closing Out 2020

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10 Dec, 2020

Welcome to our one-stop guide covering the issues relevant to the preparation of December 2020 annual reports.

This year, preparers face the additional demands of producing high-quality reports against the backdrop of the effects of the COVID-19 pandemic and its economic consequences. In a continually changing and uncertain economic environment, both the FRC and ESMA highlight the importance of entity-specific and transparent disclosures regarding the impact that COVID-19 has had on the performance, position and cash flows of the entity. The FRC’s Annual Review of Corporate Reporting and ESMA’s Common Enforcement Priorities provide guidance on appropriate reporting and meeting investor expectations during the pandemic and highlight other areas of regulatory scrutiny that reporters of all sizes should focus on in the coming reporting season

Although Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosure is not yet fully mandatory, the FRC has highlighted that climate-change reporting needs to improve significantly to meet the expectations of investors and other users. Boards need to demonstrate how they have considered climate change in setting strategy. Narrative reporting should consider the broader needs of users rather than just complying with the minimum legal requirements. Disclosures in the ‘front-half’ should be consistent with those in the ‘back half’ financial statements. A recent FRC thematic review provides guidance that will help facilitate improved company disclosure in this area.

2020 sees the mandatory application of two new legal reporting requirements. The first, effective for financial periods beginning on or after 1 April 2019, broadens greenhouse gas reporting and energy efficiency disclosure requirements in the directors’ report for quoted companies and extends this reporting requirement to large unquoted companies and LLPs. The second, impacting financial years beginning on or after 10 June 2019, introduces changes to remuneration reporting and extends the scope to unquoted traded companies.

Whilst reporting under the revenue and leasing standards, IFRS 15 and 16,is no longer new, the FRC expects significantly improved reporting under these standards. Additionally, the FRC has challenged companies to improve their s172 reporting, publishing a set of tips to assist companies in making the statement more useful.

Further FRC challenge can continue to be expected over presentation and reconciliation of Alternative Performance Measures (APMs) and business reviews, which should be a balanced and comprehensive analysis of both performance and position. Additionally the FRC will be looking for company-specific disclosures about the impact of Brexit including the company’s ability to continue as a going concern and its longer-term viability and prospects. Increasing focus is also being given to capital allocation and dividend policy disclosures.

Turning to the financial statements, amendments to both UK GAAP and IFRS Standards have been relatively minor. However, for those entities that apply hedge accounting, amendments as a result of IBOR reform to both UK GAAP and IFRS Standards are likely to be significant. Additionally, lessees and lessors reporting under UK GAAP who have received temporary rent concessions for operating leases as a direct consequence of COVID-19 will need to apply the amendments to Section 20 of FRS 102. Whilst amendments for lessees have also been made to IFRS 16, entities can choose, as an accounting policy choice, whether to apply them or not.

Our Closing Out 2020 publication covers all these topics and more, providing an invaluable guide to the issues affecting today’s corporate reporting landscape.

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