With the duration of the COVID-19 pandemic and its impact on the global economy remaining unknown, companies continue to face uncertainty about what their future may hold. This is making it difficult for boards to confidently make projections about future performance but with investors closely scrutinising results, directors need to ensure they exercise appropriate judgment and corporate governance practices.
The Financial Reporting Council has now updated its guidance for companies on corporate governance and reporting during the COVID-19 pandemic to include a section on interim reports. This includes the following guidance:
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. This might include disclosures of:
(a) any material uncertainties to going concern;
(b) assumptions made about the future path of COVID-19 and the public health responses;
(c) the projected impact on business activities;
(d) use of government support measures; and
(e) access to bank and other financing.
Issues which might trigger a need to re-examine the going concern assumption and going concern and liquidity risk disclosures include:
(a) a significant adverse variation in operating cash flows between prior budgets and forecasts and the outturn in the first half of the year;
(b) 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;
(c) a failure to obtain renewal or extension of committed financing facilities; and
(d) a failure to sell capital assets for their expected amounts or within previously forecast time-frames.
Time will tell what the future holds but in the meantime the message from the FRC seems to remain prudent.
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.