Covid-19: FRC advice for auditors and financial reporting

The Financial Reporting Council (FRC) has updated its guidance for auditors, advising that reporting schedules may need to be delayed to ensure audits continue to comply with required standards

It says uncertainty about the immediate outlook for many companies has increased sharply, with consequences for companies proposing to report results in the coming months, and for their auditors.

The regulator said it is concerned that the current situation should not undermine the delivery of high-quality audits. In current circumstances additional time may be required to complete audits and it is important that this is taken, even at the risk of delaying company reporting. 

Some companies and auditors are also facing practical difficulties in preparing accounts and carrying out audits.

Given restrictions on travel, meetings and access to company sites in some jurisdictions, audit firms may need to consider developing alternative audit procedures to gather sufficient, appropriate audit evidence.

As the situation evolves, the FRC said auditors will need to consider the impact of coronavirus on how they gather sufficient, appropriate audit evidence, recognising that the planned audit approach may need to change and alternative procedures developed.

There will be an impact on how the group auditor proposes to review the work of component auditors.

In addition, measures taken to counter the spread of the virus may impact the auditor’s assessment of going concern and the prospects of an audited company. Auditors will need to take into account the adequacy of disclosures made by management about the impact of coronavirus on the company.

There will also be a need for the auditor to reassess key aspects of their audit as a result of the fast-changing situation, which may require management to provide further evidence.

The FRC said auditors will need to engage with the entities they audit to ensure they set clear expectations as to the level of disclosure they expect to see in annual reports to communicate the impact and risk of covid-19 on the company.

Where the current circumstances have had a significant impact on the delivery of the audit, the auditor will need to consider how to explain this in their report, for example, by reporting this as a key audit matter.

Companies also need to understand that it is vital auditors have sufficient time and support to carry out their work to a high standard, including reassessing work done to reflect changed circumstances. In some cases, companies may need to reconsider their reporting deadlines.

David Rule, FRC executive director of supervision, said: ‘Given the growing impact of coronavirus on the global economy and the high degree of uncertainty, high-quality audits are vital to ensure users of financial statements are properly informed.

‘In many instances, auditors will need to consider developing alternative audit procedures to gather sufficient, appropriate audit evidence.

‘Audits should continue to comply fully with required standards. Additional time may be required to complete audits and it is important that this is taken, even at the risk of delaying company reporting.’

The FRC is currently holding weekly calls with the largest UK audit firms and says it will continue to monitor the situation carefully.

US regulator

In the US, the Securities and Exchange Commission (SEC) has published guidance for public companies, investment companies, shareholders, and other market participants affected by coronavirus with their upcoming annual shareholder meetings.

Jay Clayton, SEC chairman, said: ‘The SEC staff recognizes that many public companies and other market participants are transitioning to teleworking, virtual meetings and other contingency measures to address health concerns.

‘Our staff stands ready to facilitate these transitions and we encourage market participants to contact us with requests for guidance or relief. The SEC has itself moved to teleworking and virtual meetings and remains fully operational.’

The SEC guidance provides regulatory flexibility to companies seeking to change the date and location of the meetings and use new technologies, such as ‘virtual’ shareholder meetings that avoid the need for in-person shareholder attendance, while at the same time ensuring that shareholders and other market participants are informed of any changes.

Under the guidance, the affected parties can announce in filings made with the SEC the changes in the meeting date or location or the use of virtual meetings without incurring the cost of additional physical mailing of proxy materials. 

The guidance also encourages companies to provide shareholder proponents with alternative means, such as by telephone, to present their proposals at the annual meetings.

There are similar relief arrangements covering in-person board meetings and certain filing and delivery requirements for certain investment funds and investment advisers. 

FRC updated advice about audit issues arising from covid-19

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