A review of financial statements of companies in the United Kingdom has found that most get the green tick for providing enough COVID-19 related information, according to the UK Financial Reporting Council.
The council did a review of interim and annual reports lodged by 17 companies with a March half-year or full-year end to assess the quality of COVID-19 impact reporting.
The FRC found that most companies did well at explaining how the coronavirus pandemic has impacted both their financial position and financial performance.
It was not all smooth sailing in the UK, however, because the reviewers found areas in which companies could pull their compliance socks up.
One of those areas is the thorny issue of going concern, with the UK’s peak financial reporting body declaring some disclosures left much to be desired.
“Going concern disclosures in both interim and annual financial statements should clearly explain the key assumptions and judgements taken in determining whether a company is able to operate as a going concern,” the FRC review observed.
“In particular, any significant judgements taken in determining whether or not there is a material uncertainty in respect of going concern must be clearly documented.”
UK companies have been warned that the assumptions they use for the COVID-19 assessments should be consistent with other assumptions throughout the financial statements.
There is also the small matter of sensitivity analysis that the UK FRC wants companies to consider, as well as a range of possible outcomes given that entities are dealing with estimations of uncertainty.
Window dressing presentation to carve out what the company believes are COVID-19 impacts is “discouraged” for impairment write downs and similar items because this kind of split is deemed to be subjective and unreliable.
“We also expect companies to apply consistently existing accounting policies for exceptional and other similar items to Covid-19 related income and expenditure,” the report’s authors noted.
While the reported highlighted areas in which companies could strengthen their reporting to the market, the report also gave an elephant stamp to UK corporates for quality disclosures. The bests disclosures were company specific, the report said, and significantly bumped up the amount of detail so that readers could understand the impact of COVID-19 on the entity.
“We encourage preparers to consider carefully the findings of this review when preparing their forthcoming interim and annual reports,” the FRC noted.
“Companies should aim to ensure that not only mandatory disclosure requirements have been met but that sufficient explanations have been included within the financial statements to enable a user to understand how COVID-19 has affected both the amounts presented and the company's future prospects.”