The Financial Reporting Council (FRC) has published its annual letter to audit committee chairs and finance directors on key developments and areas for improvement that listed companies should consider when preparing their next annual report and accounts.
Key points discussed in the letter include:
- 2020 year-end reporting environment – The letter notes that the annual report in 2021 will be published against a backdrop of uncertainties, including as a result of the ongoing Covid-19 pandemic and the UK’s exit from the European Union. As such, the FRC encourages companies to consider carefully whether they should lengthen their reporting timetables for 2021, making use of the extensions to reporting deadlines announced by the FCA (see item 1 above). The letter discusses how companies should approach reporting in light of Covid-19 and refers companies to the FRC and FRC Lab’s previous publications on Covid-19 issues, including the FRC Lab’s recent update reports on Resources, action, the future and Going concern, risk, and viability (see our recent blog post). The letter also confirms the FRC’s expectation that all UK companies that use Alternative Performance Measures (APMs) in their annual reports continue to apply the ESMA Guidelines on APMs, notwithstanding the UK’s exit from the European Union.
- Section 172 statements – Following a review of section 172 statements, the FRC says that many companies did not sufficiently explain how their directors discharged their section 172 duty, and in particular how they had regard to the consequences of decisions in the long term. In relation to stakeholder engagement, the letter notes that many companies did not explain how feedback from stakeholders affected the board’s decision making. The FRC says that it expects companies to improve their section 172 statements by discussing how employee-related issues and concerns are elevated to the board; the basis on which views are promoted to board discussion; direct actions arising from board discussions; and how the company relays its decisions on feedback provided by its workforce activities. The letter also refers companies to the FRC Lab’s recent infographic on section 172 statements (see our recent blog post).
- Insights from thematic reviews – The letter discusses the key insights and observations from the FRC’s recent thematic reviews on climate change (see item 4 below), cash flow and liquidity, IFRS 15 (Revenue from contracts with customers) and IFRS 16 (leases).