FRC and FCA updated guidance for companies and auditors
Joint regulators statement for companies, auditors and users of financial statements.
On 27 January 2021, the FCA and FRC have reminded companies of the measures that remain valid today and which provide some flexibility during the Covid-19 pandemic. These include allowing listed companies an additional two months to publish their audited annual financial reports. The FCA and FRC recognise that now is the busiest period of the year for preparing, auditing and publishing financial information. This has coincided with further restrictions imposed through the recent national lockdowns in the UK.
Recognising the heightened challenges and in line with their previous statements, the FCA and FRC stated that they would like to encourage all stakeholders including in particular boards of listed companies to (1) re-familiarise themselves with the measures and (2) use them in light of any resourcing constraints in finance and/or audit teams to ensure the quality of reporting is not compromised during this period.
The FCA and FRC also alerted investors and other users of financial information, including lenders assessing covenant breaches arising solely because of changes in reporting timetables, that reporting timetables for companies might be extended for these reasons and to view these changes in the context of current events.
The FCA highlighted that during this period, it is as important as ever that the market is kept up to date with information. The Market Abuse Regulation (MAR) remains in force and companies are still required to fulfil their obligations concerning inside information as soon as possible unless they have a valid reason to delay disclosure under the regulation. Companies must continue to assess carefully what information constitutes inside information at this time, recognising that the global pandemic and policy responses to it may alter the nature of information that is material to a business’s prospects.
The FRC highlighted that they have issued a series of guidance to support high-quality reporting and disclosure of the circumstances companies have faced as a result of the pandemic, and the mitigating actions they have taken to address risks. Further guidance was also included in the FRC’s year-end letter to CEOs, CFOs and Audit Committee Chairs.
In particular they highlighted that given the heightened risk, challenge and uncertainty, audit committees may consider it appropriate to set out in their annual report the work they have undertaken, and the measures they have agreed to ensure high-quality reporting and audit for the period affected. This might include how they have ensured they have allowed enough flexibility in the year-end timetable to complete all the necessary work to an appropriate standard that will meet investor and stakeholder expectations.
The FCA and FRC also reminded audit firms of their regulatory obligations to report, to the appropriate regulator, matters arising from their work on a timely basis. Reference was made to the following letters:
FCA’s Dear CEO letter published in August 2020, and the FRC’s ISA (UK) 250 Section B - The auditor’s statutory right and duty to report to regulators of public interest entities and regulators of other entities in the financial sector.
The FRC also published consolidated guidance on 4 December 2020.