This article was written by Natalie Lim.
In response to the challenges and economic uncertainty created by the COVID-19 pandemic, the FCA, FRC and PRA published a joint statement on 26 March 2020 announcing a series of actions to ensure information continues to flow to investors and to support the continued operation of the UK’s capital markets.
The measures include:
- A statement by the FCA allowing listed companies an extra two months to publish their audited annual financial reports
- FRC guidance for companies preparing financial statements in the current environment of uncertainty
- FRC guidance for audit firms seeking to overcome challenges in obtaining audit evidence
In addition, the statement highlights a number of further actions aimed at allowing companies and auditors to focus on delivering information to investors and the capital markets, including:
- Delayed filing of annual accounts by companies – Companies House has issued guidance to permit a three-month delay to the filing of accounts at Companies House. While companies will still have to apply for the extension, those citing issues around COVID-19 will be automatically and immediately granted an extension via a fast-tracked process.
- Postponement of auditor tenders – Companies are encouraged to consider delaying planned tenders for new auditors, even when mandatory rotation is due. Notably, the FRC is empowered to extend certain mandates by up to two years in exceptional circumstances.
- Postponement of audit partner rotations – Where there are good reasons, and subject to the affected entity’s audit committee’s agreement, the rotation can be extended to no more than seven years. FRC clearance is not required for such deferment.
- Reducing FRC demands on companies and audit firms – Where possible, the FRC will delay or extend deadlines for consultations. It has postponed for at least one month writing to companies following review of their annual reports and accounts. The FRC is also considering how it can adjust its audit quality review work to reduce demands on audit firms, and will pause for at least one month requests to firms on supervisory initiatives.
Investors, lenders and other users of financial statements are strongly encouraged to make allowances for the unique set of circumstances arising from COVID-19, which might result in uncertainty in companies’ financial positions, potential delays in the provision of financial information, the need for auditors to undertake additional work to support their audit opinions, and the increased use of modified audit opinions.