FRC updates guidance for auditors on preliminary announcements

The Financial Reporting Council (FRC) has published revised guidance for auditors when agreeing to the publication of preliminary announcements, which has been updated to reflect the need for all price sensitive communications to be ‘fair, balanced and understandable’

The majority of premium listed companies in the UK base their preliminary announcements on audited information, but the guidance also deals with situations where the auditor is asked to agree to the publication of an ‘unaudited’ prelim.

The regulator says its revisions are consistent with the feedback received following a consultation earlier in the year, and reflect the overriding view that current arrangements for preliminary announcements are largely effective for market participants.

The bulletin covers the use of alternative performance measures, and a new voluntary report by the auditor setting out the status of the financial statement audit and the procedures carried out by the auditor to agree to publication.

The UK listing rules do not indicate what form the agreement with the auditor should take, or the extent of work expected of the auditor before the auditor gives its agreement. The bulletin provides guidance on the procedures that would normally be carried out by the auditor and on communicating the outcome of such procedures to the directors.

Many companies provide more information in their preliminary announcement than the minimum requirements of the listing rules. In the opinion of the FRC it is neither practical nor desirable for the auditor to agree to anything less than the entire content of the preliminary announcement.

The FRC encourages the auditor to make explicit its agreement to the issue of the preliminary announcement by sending a letter to the directors.

Similarly, if the auditor is not in agreement with the content of the preliminary announcement, it communicates this to the directors by sending them a letter setting out the reasons for its disagreement, advising the directors that the preliminary announcement should not be published.

The auditor may become aware that a company has released a preliminary announcement without first obtaining its agreement. There may be a number of reasons for this ranging from innocent oversight on the part of the directors to the directors knowingly releasing a preliminary announcement with which the auditor disagrees.

The action that the auditor takes depends on the particular circumstances. In circumstances where a preliminary announcement is inadvertently released without the auditor’s knowledge, but with which the auditor does in fact agree, the auditor may wish to remind the directors of their obligation under the listing rules to have obtained the auditor’s agreement.

However, at the other end of the spectrum, where the auditor becomes aware that the directors have released an announcement with which it disagrees, it notifies the UK listing authority of the fact that it had not agreed to the announcement, and takes legal advice. The appendix has sample letters for both sets of circumstances.

FRC Bulletin: The Auditor’s Association with Preliminary Announcements made in accordance with UK Listing Rules is here.

Report by Pat Sweet

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