COVID-19 and its impact on operations and the bottom line tops the U.K. corporate governance watchdog’s list of what it wants to see in company reports for 2021.
According to the Financial Reporting Council (FRC), investors and other stakeholders expect reports to explain clearly how much cash the company has at its disposal and what the longer-term impacts of the pandemic could be on the business model and its strategy.
The regulator also wants to see what key actions management has taken—and is planning to take—to mitigate the business risks associated with COVID-19, as well as the board’s assessment of the company’s future viability and an explanation as to how it has reached those conclusions.
“The economic uncertainty caused by the COVID-19 pandemic has only heightened the need for companies to provide clear disclosures that allow users of accounts to properly understand a company’s position, financial performance and outlook,” FRC CEO Sir Jonathan Thompson said in a statement.
The FRC also wants companies to discuss in detail how Brexit is likely to affect them, in addition to more meaningful disclosure on climate change. The regulator wants companies to provide strategic reports that “clearly describe their environmental policies, rather than simply naming or listing them” while also explaining how climate risks impact parts of the business and what boards are doing to mitigate them.
The FRC has found some financial statements still do not mention climate change, even though the narrative reporting that accompanies such statements implies climate risks might be having a significant impact on key financial statement assumptions.
Other areas where corporate reporting needs to improve include cashflow and liquidity, directors’ duties, the tenure of boardroom chairs, and workforce engagement.