For listed companies in general, the FCA has also emphasised that notwithstanding the extensions to the publication deadlines, listed companies remain subject to the disclosure requirements under the Market Abuse Regulation (MAR) (and on AIM, AIM Rule 11).
The Financial Reporting Council (FRC) has also issued additional guidance for both companies and auditors.
Main Market Listed Companies
For companies with securities listed on the Main Market, the FCA has announced that it will not take any enforcement action (including not suspending their shares) provided their annual accounts are published within 6 months of the year end. The FCA also recommends against companies rushing to release preliminary results in the current climate and for investors not to draw any adverse inferences where companies make use of the extended period.
The FCA’s requested moratorium on companies releasing preliminary statements of their annual results will end on 5 April 2020.
AIM Listed Companies
London Stock Exchange has followed this extension with a special Inside AIM extending the period by which AIM listed companies must publish their annual accounts from 6 months to 9 months. Companies with financial year ends from 30 September 2019 to 30 June 2020 may take advantage of the extended period by having their nominated adviser apply to AIM Regulation prior to the normal 6 month publication deadline.
All UK Incorporated Companies
For UK registered companies, Companies House has issued a notice stating that the period within which accounts must be filed at Companies House can be extended by 3 months. In order to take advantage of the extension, companies must notify Companies House by the date when their accounts would ordinarily have been due to be filed.
The FRC has issued guidance for companies preparing their annual reports and accounts and for auditors in performing their audit function.
For companies, the FRC Guidance provides that:
- boards need to ensure that they consider whether their normal internal reporting, risk management and internal control systems are continuing to operate effectively in the current circumstances, and whether they need to implement alternative controls or systems to mitigate potential impacts;
- if announcing dividends, companies should carefully consider their financial position both at the time the dividends are declared and at the time when they will be paid. Once a dividend has been declared, it generally becomes payable and cannot be withdrawn (though London Stock Exchange has given listed companies an additional 30 days to make payments of already declared dividends);
- strategic reports should be as full as possible and companies may need to reconsider their principal risks and uncertainties given the COVID-19 outbreak and the impact(s) to their business of the imposition of social distancing in particular;
- when boards assess the “reasonable expectation” of their company’s viability, any reasonable level of expectation is likely to have a much lower level of confidence than normal, so the FRC stresses the importance of making full disclosure of the underlying assumptions and significant judgements made in making the viability statement;
- in assessing material uncertainties, boards should consider the likelihood of the uncertainty materialising and whether any mitigations are available, including government support schemes. Disclosures of material uncertainties should be as full as possible; and
- COVID-19 is generally accepted as being a “non-adjusting” event for most companies preparing financial statements for financial years ended 31 December 2019 or earlier, requiring disclosure rather than adjustments to the balance sheet as at the reporting date. Where the financial effect of the non-adjusting event cannot be estimated (by either an exact estimate or a range of estimated effects), this should be disclosed along with a qualitative estimate of the effect.
The FRC has also issued more detailed advice to assist auditors, addressing some of the challenges posed to their audit process by the current pandemic, such as:
- the inability to make site visits and check core data, and the extent to which other, remote means of verification of information may be practical or possible;
- adjustments required in the preparation of the going concern assessment, including the potential need for modified audit opinions, whether as to scope or going concern, and clear explanations to investors and other users of the annual report and accounts on the reasons for any such modification; and
- the need to continue to review the going concern basis until the time when the audit is finally signed off, including the extent to which additional up-to-date information may be required from companies.
The FRC has also reminded companies and audit firms that the need to put audits out to tender every 10 years and to rotate audit partners every 5 years can (under existing rules) be deferred for up to 2 years in certain circumstances. The FRC considers the present circumstances would justify such a deferral and is recommending against audit re-tenders at the present time.
If you would like to discuss any of the above, please contact Alasdair Steele, James Parkes or your regular CMS contact.