FRC updates its COVID-19 guidance for companies to include going concern considerations for interim reporters

14 May 2020

The FRC previously issued guidance for companies in March 2020. The updated guidance still covers those areas included in that earlier guidance which include:

• Key areas of focus for boards in maintaining strong corporate governance and high-level guidance on some of the most pervasive issues that should be considered when preparing annual reports and other corporate reporting.
• Management information
• Risk management and internal controls systems
• Dividends and capital maintenance
• Corporate reporting
• Strategic Report and Viability Statement
• Financial statements – going concern and material uncertainties, significant judgements and estimation uncertainty and events after the reporting date.

For interim reports the guidance indicates that directors will need to exercise judgment about the nature and extent of the procedures that they apply to assess the going concern assumption at the half‐yearly date. The FRC indicates that this might include disclosure of:

• any material uncertainties to going concern;
• assumptions made about the future path of COVID-19 and the public health responses;
• the projected impact on business activities;
• use of government support measures; and
• access to bank and other financing.

The guidance provides a number of scenarios which may trigger a need to re‐examine the going concern assumption and going concern and liquidity risk disclosures including:

• a significant adverse variation in operating cash flows between prior budgets and forecasts and the outturn in the first half of the year;
• a significant reduction in projected revenues for the second half of the year based on plausible scenarios for the COVID-19 pandemic and public health responses, and taking into account government support measures;
• a failure to obtain renewal or extension of committed financing facilities; and
• a failure to sell capital assets for their expected amounts or within previously forecast time‐frames.

If going concern has become a significant issue since the previous annual financial statements, the guidance indicates that directors should undertake procedures similar to those that they would have carried out for annual financial statements to ensure that all relevant issues have been identified and considered.

The updated guidance for companies is available on the FRC website.