The Financial Reporting Council’s (FRC) Lab has issued practical guidance to companies in areas of reporting that investors have highlighted as being most critical during the coronavirus pandemic
Investors are calling for clear and timely disclosures from companies, including any going concern considerations, to help them identify those companies which need the most attention and support.
Two reports from the FRC’s Lab found that investors recognise Covid-19 may create a wide range of issues for companies, but that the provision of transparent and timely information helps investors in their decision-making and drives the allocation of capital when companies are looking to the markets for support.
As the UK economy is at risk of a recession, those businesses that provide such information are critical in helping the economy back to health.
The first report provides further practical advice to companies following the Lab’s infographic issued in March setting out the disclosures investors expect to see from companies during this time of uncertainty.
The second report gives specific guidance on going concern, risk and viability disclosures.
The Lab’s reports found that investors are fully aware that the levels of uncertainty are unprecedented and, to a large extent, outside companies’ control.
They encourage boards of companies to consider plausible scenarios and report on how they intend to respond to these going forward. Examples of good practice reporting have been included to assist companies.
Elements of uncertainty relevant to the next 12 months might include (but are not limited to):
- timing of resumption of operations;
- further restrictions that limit the return to normal operations;
- restrictions placed on government (or other) capital;
- timing and continuation of government schemes and support packages;
- the outcome of capital raising actions, discussions with banks, and landlords;
- short-term impacts of pricing changes to revenue and expenses; and
- impacts on human capital, the supply chain and customers.
The FRC’s chief executive, Sir Jon Thompson said: ‘These are unprecedented times and investors rightly expect clear and timely disclosures from companies setting out the impact of Covid-19 on their business and long-term prospects.
‘Good quality reporting is vital in times of uncertainty and will help investors make informed decisions about where support for companies is most needed.’
‘As we turn our attention to the recovery, investors have a key role to play in supporting jobs and building resilience in our economy.’
The two reports:
Covid-19: going concern, risk and viability
Covid-19: investor disclosures