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Coronavirus - Update for UK companies - UK

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Year end reporting and filing accounts

Year end reporting and audit

As a reminder, the Financial Reporting Council (FRC) published advice to all companies and auditors in February on COVID-19 related risk disclosures in year-end reports. The advice encourages companies to consider what related disclosures they might need in their year-end accounts, particularly where they are dependent on supply chains in, or have close trade associations with, China. However, the FRC letter noted that other companies could be affected, and companies will need to monitor developments to ensure that they provide up-to-date and meaningful disclosures. Clearly the situation continues to evolve rapidly given the current focus on the outbreak in Europe and beyond.

The FRC has now issued updated advice on audit issues arising from the COVID-19 pandemic. The FRC notes that in addition to the sharp increase in uncertainty for many companies, there may also be practical difficulties in preparing accounts and carrying out audits. The advice states that audits should continue to comply with required standards, and additional time may be required to complete audits, even at the risk of delaying company reporting.

The FRC notes that auditors will need to consider the impact of COVID-19 on a number of areas, including:

  • the auditor’s risk assessment, and whether it needs to be revised;
  • how to gather audit evidence, appreciating that the planned audit approach may need to change and alternative procedures may need to be developed;
  • the auditor’s assessment of going concern and prospects, given that uncertainty about the global economy and the immediate outlook for many companies has increased;
  • the adequacy of management disclosures about the impact of COVID-19 and the company’s prospects; and
  • the need for an auditor to reassess key aspects of their audit as a result of the fast-changing situation, recognising that the assessment will continue until the auditor's report is signed and may require management to provide further information and evidence.

Auditors will also need to:

  • provide their client companies with clear expectations as to the level of disclosure they need to see to communicate the impact and risk of COVID-19; and
  • ensure that auditors must have sufficient time and support to carry out their audits, including (if required) the ability to reassess work already done to reflect changing circumstances. In some cases, companies may need to re-consider their reporting deadlines.

Given the current level of uncertainty, it is important that companies discuss these issues with their auditors.

Filing accounts

Companies House has issued guidance for companies that are unable to file their accounts due to being affected by COVID-19. If, immediately before the filing deadline, it becomes apparent that companies will not be able to file their accounts due to being affected by the outbreak, companies may make an application to extend the period allowed for filing. The guidance contains links to the existing Companies House guidance on applying for more time.

Companies should be aware that if they do not request such an extension then an automatic penalty will be imposed. Any appeals would then be dealt with under the existing Companies House guidance for appeals based on unforeseen ill health. 

In view of the current challenges surrounding audit, companies should keep on top of this, and be prepared to apply to extend the filing deadline for their accounts where necessary.

Listed and traded companies

As the uncertainty for business increases, listed and traded companies that are subject to the Market Abuse Regulation (MAR) will be considering their ongoing obligations with regards to the disclosure of inside information (under Article 17 of MAR). Listed and traded companies should consider whether material adverse effects or new developments that are directly or indirectly linked to the COVID-19 threat could satisfy the requirement for “inside information” as set out in MAR, and continue to assess their disclosure obligations as the impact of COVID-19 in the UK and elsewhere becomes more significant.

As a reminder, “Inside Information” is determined by reference to a variety of factors, including whether the information would be likely to have a significant effect on the price of the company’s traded shares or securities, and the likelihood that a reasonable investor would use such information to make investment decisions relating to the shares or securities.

The European Securities and Markets Association (ESMA) has recently issued advice which reinforces this. The advice also notes that in addition to market disclosure, companies with traded securities should also have regard to:

  • Business continuity planning – companies should be ready to enact their business continuity measures to ensure operational continuity in line with their regulatory obligations.
  • Financial reporting – as also identified by the FRC, companies should provide transparency on any impacts (actual and potential) on their business activities, financial situation and economic performance either in their 2019 year-end reports (if not yet finalised) or otherwise in their interim financial reporting disclosures.

For many traded companies (particularly those with a December year-end) we are approaching the AGM season.  We are aware that ICSA, the Chartered Governance Institute, are working on some guidance on the impact of the virus and we will report on this as soon as it is published, but in the meantime we and companies will be considering the practical and legal implications for holding physical and/or hybrid AGMs and indeed general meetings.

What next?

This is clearly a fast moving situation, and further updates will follow in the coming days and weeks. The UK Government has issued general guidance for businesses which is available here.

For Eversheds Sutherland briefings and updates on specific topic areas, visit the client Coronavirus hub here.

Useful links

FRC advice to companies and auditors

FRC Guidance on audit issues arising from the COVID-19 pandemic and press release

Companies House advice for companies unable to file accounts on time

ESMA advice to market participants

Coronavirus (COVID-19): guidance for UK businesses

Eversheds Sutherland Coronavirus hub