Essential Corporate News: Week ending March 20, 2020

FRC: Guidance on audit issues arising from the COVID-19 (coronavirus) pandemic

On March 16, 2020, the Financial Reporting Council (FRC) published guidance on issues arising from the spread of the coronavirus for companies proposing to report their financial results in the coming months, and for auditors. This follows advice for companies previously published by the FRC on the disclosure of risks and other consequences arising from the coronavirus.

While the FRC accepts that there may be practical difficulties in preparing accounts and carrying out audits, it continues to want high-quality audits delivered and required audit standards complied with, so notes that delays in corporate reporting may be needed to enable audits to be completed. It comments that it is in regular contact with the largest audit firms and is considering what advice and guidance it can give to auditors in the coming months.

The guidance states that auditors will need to consider the impact of COVID-19 on:

• The auditor’s risk assessment and whether it needs revising.
• How the auditor gathers sufficient, appropriate evidence, particularly in group audit engagements.
• How the group auditor is to review the work of component auditors, particularly where travel restrictions apply, meaning alternative procedures may be needed.
• The auditor’s going concern assessment and an audited company’s prospects.
• The adequacy of management’s disclosures about the impact of the coronavirus on the company and its prospects.
• The need for the auditor to continually reassess key aspects of the audit up to the signing of the auditor’s report. Management may need to provide further information and evidence and where current circumstances have had a significant impact on audit delivery, this will need to be explained, possibly as a key audit matter.

So far as engagement with companies is concerned, the FRC suggests that:

• The auditor sets clear expectations as to the level of disclosure they expect to see in annual reports to communicate the impact and risk of COVID-19 on the company.
• Companies, and particularly audit committees, need to understand that auditors require sufficient time and support to carry out their work to an appropriate standard. This may mean companies need to reconsider their reporting deadlines and if auditors cannot obtain sufficient, appropriate audit evidence to support their audit, they may need to consider necessary modifications to their audit opinion.

(FRC: Guidance on audit issues arising from the Covid-19 (Coronavirus) pandemic, 16.03.20)

ICSA: AGMs and the impact of COVID-19

On March 17, 2020, the Chartered Governance Institute of the Institute of Chartered Secretaries and Administrators (ICSA), with organisations including the Financial Reporting Council, published a Guidance Note for companies planning their AGM in light of the spread of the Coronavirus. This has been reviewed by the Department for Business, Energy and Industrial Strategy (BEIS).

While noting that companies will need to consider their individual circumstances, including their articles of association and other relevant matters, the Guidance Note states that companies effectively have five options (although, as the situation evolves, more than one option may be appropriate):

• Adapt the basis on which they hold their AGM.
• Delay convening the AGM if the notice has not yet been posted.
• Postpone the AGM if the company’s articles of association permit.
• Adjourn the AGM.
• Conduct a hybrid AGM if the company’s articles permit.

The Guidance Note offers suggestions reflecting UK company law and regulation in relation to each of these options and suggests measures that companies should consider in relation to each.

(ICSA, AGMs and impact of Covid-19, Guidance Note, 17.03.20)

FCA: Primary Market Bulletin No. 27 – Coronavirus update

On March 17, 2020 the Financial Conduct Authority (FCA) published a special edition of their Primary Market Bulletin (PMB) to provide commentary for issuers and market participants in light of the COVID-19 pandemic. The FCA states that it will keep the matters in the PMB under consideration and the information updated, with the FCA’s core focus being to ensure consumers are protected and markets continue to function well.

The PMB covers the following:

• Ongoing disclosure under the Market Abuse Regulation (MAR) – Issuers should continue to comply with their obligations under MAR and relevant FCA rules and issuers should be aware that their own operational response to the Coronavirus may require disclosure under MAR. Listed issuers will continue to be expected to make every effort to meet their disclosure obligations in a timely fashion, although the FCA realises there may be challenges in the convening and operating of disclosure committees and a slight delay in the short term as new processes are put in place.
• Market volatility and suspension of trading – The FCA aims to continue to maintain open and orderly markets but will consider requests from issuers to suspend trading in certain securities. It will challenge the need for suspension where it thinks an announcement to the market would be more appropriate.
• Importance of transaction notifications – Persons discharging managerial responsibilities (PDMRs) and their closely associated persons must continue to meet their notification requirements under MAR within the prescribed time frame.
• Delays in corporate reporting – The FCA expects issuers to put in place contingency plans to minimise logistical issues caused by the coronavirus when producing reports and accounts. It notes that if an issuer does not believe it can meet its continuing obligations, it should take appropriate advice and discuss the issue with the FCA. Issuers should also engage with their auditors, who should contact the Financial Reporting Council (FRC) as appropriate. Deadlines for issuers under the Disclosure Guidance and Transparency Rules still apply to listed issuers but the FCA will keep this under review and liaise closely with the FRC and the Department for Business, Energy and Industrial Strategy.
• Shareholder meetings – The FCA states that it supports the effective exercise of shareholders’ rights but recognises that the coronavirus may involve the use of virtual methods.
• Corporate transactions and admissions – The FCA will continue to review documentation for corporate transactions and issuers are reminded that if they are looking to carry out urgent transactions, they should first engage with their sponsor or adviser.

(FCA, Primary Market Bulletin, Issue No 27 – Coronavirus update, 17.03.20)

Transparency International UK: Open Business – Principles and guidance for anti-corruption corporate transparency

On March 12, 2020, Transparency International UK published a report which includes practical and implementable guidance for companies on corporate anti-risk disclosures across five areas that are at high risk of corporate corruption. The report also includes the business case for corporate governance and anti-corruption transparency, as well as responses to some of the legal challenges that might inhibit companies from disclosing information.

The report calls on companies to do the following in terms of disclosures:

• Increase meaningful disclosures on their anti-corruption programmes, particularly with reference to frameworks behind, and implementation of, their policies and procedures.
• Increase meaningful disclosures around beneficial ownership and publicly advocate for governments to adopt data standards on beneficial ownership transparency.
• Publicly disclose all fully consolidated subsidiaries and non-fully consolidated holdings, and state publicly that they will not work with businesses which operate with deliberately opaque structures.
• Publicly disclose the nature of work, their countries of operation and the countries of incorporation of their fully consolidated subsidiaries and non-fully consolidated holdings, and publicly disclose country-by-country breakdowns of their payments to governments.
• Increase meaningful disclosures on their corporate political engagement, including around their control environment, political contributions, lobbying and on the revolving door, the movement of individuals between positions in the public and private sectors. It is recommended that companies should publicly disclose evidence that the board or a board committee provides oversight of the company’s political activities at least annually.

The report provides guidance for companies on these areas and it highlights current best practice and good practice examples of disclosures to assist companies further.

(Transparency International UK, Open Business, 12.03.20)