While capital markets rely on companies to provide timely and accurate information, and investors, shareholders and others rely on companies to provide financial reports that have been through a rigorous audit process, government and regulators in the UK recognise that the COVID-19 pandemic is creating huge challenges for both corporate reporting and audit processes.
As a result, guidance in a variety of forms has been published to assist companies and auditors and ensure that investors and others continue to receive the financial information they require. This briefing looks at some of that guidance.
Moratorium on publication of preliminary results by listed companies
On March 21, 2020, the Financial Conduct Authority (FCA) announced that it was writing to all listed companies it knew were about to publish preliminary financial statements (prelims), asking them to observe a voluntary moratorium and not to publish.
Publication of prelims is not required by the FCA’s Listing Rules or Disclosure Guidance and Transparency Rules (DTRs), and the FCA’s request for a moratorium stemmed from concerns that the practice of issuing prelims in advance of the full audited financial statements was adding unnecessary pressure for companies and auditors. At the same time, the FCA reminded listed companies of their obligation to disclose inside information to the market as soon as possible in accordance with the EU Market Abuse Regulation (MAR) unless a valid reason to delay disclosure exists – for further information on this topic see our separate briefing, COVID-19: Disclosure issues for UK listed companies under MAR.
In a subsequent announcement on March 26, 2020, relating to the extension of the deadline for listed companies to publish their audited financial statements (discussed further below), the FCA noted that the voluntary moratorium in relation to prelims had been well observed and would end on April 5, 2020.
Extension of deadline for publication of audited financial statements of listed companies
Listed companies subject to DTR 4 are required to publish their annual financial statements within four months of their financial year end.
However, on March 26, 2020, the FCA announced temporary relief, permitting an additional two months for publication. Provided the audited financial statements are published within six months of a listed company’s financial year end, the FCA will not take steps such as suspending the company’s listing which it otherwise has power to do.
In its announcement, the FCA urged companies to review their timetables for publication of financial information so that they can use the extra time available to prepare accurate and careful disclosures. The FCA also urged investors and other market participants not to draw undue adverse inferences if a company does make full use of the time being made available.
Notwithstanding this temporary relief, listed companies still need to keep in mind their disclosure obligations under MAR (as discussed above).
Extension of deadline for publication of audited financial statements of AIM companies
AIM companies are required by the AIM Rules to publish their annual audited accounts within six months of their financial year end. However, on March 26, 2020, AIM Regulation announced temporary measures in Inside AIM, permitting companies, through their nominated advisers, to apply to AIM Regulation for a three-month extension to this reporting deadline. This extension applies to AIM companies with financial year ends between September 30, 2019 and June 30, 2020. It follows a joint initiative by the Department of Business, Energy and Industrial Strategy and Companies House to give all UK companies the ability to apply online to Companies House for a three month extension of the legal filing deadline.
The requirement under the AIM Rules for half-yearly reports to be published within three months of the end of the relevant period has not currently been amended but is being kept under review.
Extension of deadline for publication of half-yearly financial reports (interims) by listed companies
While DTR 4 requires listed companies to publish their half-yearly financial reports within three months of the end of the relevant accounting period, on May 27, 2020, the FCA announced temporary relief, permitting an extra month for publication. Provided half-yearly financial reports are published within four months of the end of the relevant accounting period, the FCA will not expect listed companies to request a suspension of their securities for breach of the DTR 4 requirements and the FCA will not take steps to suspend the listing on the basis of such a breach.
This deadline extension is only intended to be temporary and will be kept under review. The FCA has stated that when the disruption caused by the COVID-19 pandemic has subsided, it will announce how the policy is to be ended in a fair, orderly and transparent manner.
FRC guidance for companies and auditors
Given current difficulties arising from the COVID-19 pandemic, the Financial Reporting Council (FRC) has also been publishing regular guidance for companies and auditors to assist with both the preparation of financial statements and the audit process.
In February 2020, it published guidance on the disclosure of risks and other reporting consequences arising from the emergence and spread of COVID-19. It subsequently issued guidance on audit issues in light of concerns that the pandemic could undermine the delivery of high quality audits. Further guidance for companies on corporate governance and reporting, and for auditors on audits impacted by the pandemic, was published on March 26, 2020, together with a joint statement by the FRC, FCA and Prudential Regulation Authority which includes additional suggestions to enable companies and auditors to focus on delivering information to investors and the market. Since then the FRC has continued to publish additional guidance on matters including modified auditors’ opinions and reports during the COVID-19 crisis, corporate governance and reporting (including interim reports) and the reporting of exceptional items and alternative performance measurements in reports and accounts in the context of the COVID-19 crisis.
The volume of guidance being published by regulators is indicative of the difficulties surrounding corporate reporting and audits at the current time. Regulators are attempting to ameliorate the situation by co-ordinating their actions and publishing frequent guidance, but it can be difficult for companies to keep abreast of this given all of the other demands on management’s time in the current environment.
Our extensive experience of advising companies on their reporting and other disclosure obligations means we are well positioned to assist companies on these issues.