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International Restructuring Newswire
Welcome to the Q2 2025 edition of the Norton Rose Fulbright International Restructuring Newswire.
United Kingdom | Publication | November 2020
On November 24, 2020 the Corporate Insolvency and Governance Act 2020 (Coronavirus) (Suspension of Liability for Wrongful Trading and Extension of the Relevant Period) Regulations 2020 were made and they come into effect on November 26, 2020. They further extend the suspension of the wrongful trading provisions in the Insolvency Act 1986 and extend the temporary flexibilities for company meetings introduced in the Corporate Insolvency and Governance Act 2020 (CIGA).
These Regulations effect these extensions in the following manner:
On November 26, 2020 the Financial Reporting Council (FRC) published its assessment of the reporting of up to 100 FTSE 100, FTSE 250 and FTSE Small Cap companies against the 2018 UK Corporate Governance Code (2018 Code). It states that while it has found examples of good reporting, overall it is disappointed with the response to the 2018 Code. The review presents the FRC’s findings and sets out its expectations for the future application of the 2018 Code and reporting.
The FRC’s analysis shows that companies not compliant with the 2018 Code continue to offer vague explanations rather than explanations that demonstrate a thoughtful approach to corporate governance and the FRC states that, as a result of the review, it expects improved reporting in the following ways:
In its conclusion, the FRC notes that the year ahead brings even more challenges. Boards will need to ask some of the hardest questions, ensuring that the varied risks associated with Brexit, COVID-19 and climate change are effectively managed and mitigated in company operations and strategy. Over the next year the FRC states that it will be carefully monitoring how companies are reporting on the impact of risks which have manifested themselves and how boards are responding in terms of improving their governance. With growing focus on the social issues, the FRC will review how directors are discharging their section172 duty Companies Act 2006 duty, in particular the quality of stakeholder engagements, the extent to which they have informed board decisions and how effectively companies are responding to concerns raised.
(FRC: Review of corporate governance reporting 2020, 26.11.2020)
On November 23, 2020 the Department for Business, Energy and Industrial Strategy (BEIS), with the Financial Reporting Council (FRC), published a letter explaining the arrangements that will be in place for accounting and reporting standards in the UK from January 1, 2021. The letter includes a Q&A section at the back of it.
The Companies Act 2006 requires UK incorporated companies to prepare their annual accounts either in accordance with International Accounting Standards endorsed by the EU (EU-adopted IFRS), or in accordance with UK Generally Accepted Accounting Practice (UK GAAP) standards. All UK incorporated companies currently required to use EU-adopted IFRS will need to use UK-adopted international accounting standards for financial years beginning on or after January 1, 2021. On January 1, 2021, UK-adopted international accounting standards and EU-adopted IFRS will be identical. Companies with financial years ending on December 31, 2020, can continue to use EU-adopted IFRS as it stands at the end of the transition period for the 2020 financial year, and UK-adopted international accounting standards for the next financial year. Where new or amended IFRS are adopted by the UK after the transition period, but before those companies file their accounts for the financial years that straddle the end of the transition period, they can choose to apply any new IFRS adopted by the UK in addition to EU-adopted IFRS as they exist at the end of the transition period, as can companies with financial years ending before the end of the transition period, but who do not file until after the end of the transition period. Companies choosing to make use of this option, will need to disclose what standards they have used as part of the notes to their financial statements.
UK incorporated companies or groups with securities admitted to trading on an EEA regulated market, or UK incorporated groups that issue debt from a subsidiary incorporated in the EEA, will need to comply with local regulatory provisions from January 1, 2021. If UK-adopted international accounting standards are granted equivalence to EU-adopted IFRS, accounts prepared using these standards will be permissible for trading on an EEA regulated market but no such decision has yet been made. UK issuers of shares or debt securities that are only admitted to trading on EEA regulated markets will no longer be subject to the Transparency Rules issued by the Financial Conduct Authority from January 1, 2021.
While most companies that apply UK GAAP to prepare their accounts will not face any changes to their reporting requirements, there will be changes for companies that have an EEA parent or subsidiary or are listed in the EEA (see below). In addition, companies whose securities are admitted to trading on an EEA regulated market but who do not have to prepare consolidated accounts will probably have to prepare an additional set of accounts to meet the Transparency Directive requirements.
The letter sets out the changes that will apply to the following:
EEA companies with transferable securities admitted to trading on a UK regulated market and who use EU-adopted IFRS will not have to do anything as the UK has already determined the equivalence of EU-adopted IFRS for the purposes of the FCA’s Transparency Rules. EEA companies with transferable securities admitted to trading on a UK regulated market who use Member State GAAP, for financial years beginning on or after January 1, 2021 will need to prepare accounts in accordance with the law of the UK. EEA companies with transferable securities admitted to trading on a UK regulated market will also need to ensure that their EEA auditor is registered as a third country auditor on the register of third country auditors maintained by the FRC.
Such companies may need to produce consolidated group accounts for their EEA sub-group, as well as individual accounts.
(BEIS, Accounting and corporate reporting after the end of the transition period, 23.11.2020)
On November 23, 2020 the Department for Business, Energy and Industrial Strategy (BEIS), with the Financial Reporting Council (FRC), published a letter explaining the arrangements that will be in place for auditors and firms from January 1, 2021. The letter includes a Q&A section at the back of it.
The letter notes that, at the time of writing, the EU has not reached ‘equivalence’ or ‘adequacy’ decisions in relation to the UK under Articles 45-47 of the Audit Directive. If the EU makes a positive equivalence decision, a UK auditor that registers as a third-country auditor in an EEA state may be exempt from quality assurance by the competent authority in that EEA state with respect to any audit work it has conducted for an entity that is both incorporated in the UK (or elsewhere outside the EEA) and lists its securities on a regulated market in that EEA state.
The letter considers the following:
On November 24, 2020 Glass Lewis published its UK Policy Guidelines for 2021.
Key changes to the 2020 Guidelines include the following:
On November 23, 2020 the Financial Reporting Lab issued a call for participants in a new project on corporate disclosures on risks, uncertainties and scenarios. The call notes that given the significant reassessment many companies are making to their longer-term business model and strategy, risk, uncertainty and scenario reporting is likely to become even more important. The aim is to publish a range of outputs from the project across 2021.
(FRC, Call for participants in Lab project on risks, uncertainties and scenarios, 23.11.2020)
On November 24, 2020, the Financial Reporting Council (FRC) published the results of a review of eleven audits of the going concern assessments performed by the seven largest UK audit firms.
Audit firms have implemented additional measures to enhance their evaluation of companies’ going concern assessments, since the start of the Covid-19 pandemic and the review found that these additional policies and procedures have been substantially applied in practice.
The FRC notes that the auditors demonstrated an appropriate level of challenge to company boards and management about their key assumptions, stress testing and disclosures in the financial statements. However, in some cases, auditors needed to improve their consideration of the going concern assessment period, which was not always clear, and their approach to testing the integrity of the forecasting models.
The FRC’s review follows updated guidance issued to companies and auditors in March 2020, an FRC Lab report on going concern, risk and uncertainty and a thematic review in July 2020 on the financial reporting of Covid-19.
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