Essential Corporate News: Week ending March 27, 2020

FCA: Statement of Policy: Delaying annual company accounts during the coronavirus crisis

On March 26, 2020, the Financial Conduct Authority (FCA) published a Statement of Policy announcing temporary relief for listed companies facing the challenges of corporate reporting during the coronavirus crisis.

This temporary relief will permit listed companies which need the extra time to complete their audited financial statements an additional two months in which to publish them. Currently, under the Transparency Directive, listed companies have four months from their financial year end in which to publish audited financial statements (DTR 4.1.3R). Under this temporary relief the FCA will, among other things, forbear from suspending the listing of companies if they publish financial statements within six months of their year-end.

The FCA reminds companies that, during this period, it is as important as ever that the market is kept up to date with information. The Market Abuse Regulation (MAR) remains in force and companies are still required to fulfil their obligations concerning inside information as soon as possible unless a valid reason to delay disclosure under the regulation exists. Companies must continue to assess carefully what information constitutes inside information at this time, recognising that the global pandemic and policy responses to it may alter the nature of information that is material to a business’s prospects.

The FCA has also published questions and answers relating to delaying annual company accounts during the coronavirus crisis. These cover the following:

• Does the extension of the deadline for publishing Annual Financial Reports (temporary relief) apply to all listed companies?
• How does this apply to issuers with a Home State under the Transparency Directive that is not the UK?
• Does this affect companies that are admitted to unlisted markets in the UK such as AIM or NEX Growth?
• Does the extension apply to listed companies that are not already required to comply with the transparency rules (or with corresponding requirements imposed by another EEA Member State)?
• Does the extension apply to companies that only have listed debt securities?
• How are these measures being achieved?
• Under what circumstances does the FCA suspend listing of securities?
• Do listed companies still have to produce Preliminary Statements of Accounts?
• Does this cover half yearly financial reports (interims)?

(FCA, Statement of Policy, Delaying annual company accounts during the coronavirus crisis, 26.03.20)

(FCA, Statement of Policy: Delaying annual company accounts during the coronavirus crisis: Q&A, 26.03.20)

FCA: FCA requests delay to forthcoming announcement of preliminary results

On March 21, 2020, the Financial Conduct Authority (FCA) announced that it would be writing to listed companies it is aware are intending to publish their preliminary financial statements shortly, requesting that they do not do so for at least two weeks. The FCA states that this is to give companies time to prepare their disclosures in light of the impact of the coronavirus crisis. Observing pre-set timetables may not give companies sufficient time to do this.

The FCA points out that neither the Listing Rules nor the EU Transparency Directive require listed companies to publish preliminary results but that it is common for them to be published considerably earlier than the four months from the financial year end permitted for the full financial statements. The FCA is concerned that continuing to issue preliminary results is adding unnecessarily to the pressure on companies and auditors. However, the FCA does remind companies that they must still comply with their obligations under the Market Abuse Regulation (MAR) and announce inside information to the market as soon as possible unless a valid reason to delay disclosure under MAR exists.

The FRC has confirmed that it supports the moratorium and, in its subsequent Statement of Policy published by the FCA on March 26, 2020, the FCA confirmed that the moratorium would end on April 5, 2020.

The FCA has also published technical Q&A for firms in light of the announcement. Questions raised are as follows:

• What is the purpose of the FCA’s action? – To ensure companies and boards are not rushed into preliminary financial statements.
• Has the FCA asked for a moratorium on all company reporting – No, just preliminary results to be published in the next two weeks.
• Is the moratorium compulsory? – No, it is voluntary.
• Does the announcement cover AIM companies? – No. AIM companies are advised to consult their nominated advisers.
• We had planned a preliminary announcement so can we issue a Q4 trading statement instead or does that breach “spirit” of moratorium? – No, it is a sensible response as listed companies must still announce inside information to the market as soon as possible under MAR unless there is a valid reason to delay.
• Reporting processes are largely completed so must we delay? – Moratorium is voluntary so some boards may choose not to observe it.
• How does the announcement relate to filing audited reports? – Boards should consider this as announcement relates to preliminary, not final, results but companies may want to use the full time available to them to publish their reports.

(FCA, FCA requests a delay to the forthcoming announcement of preliminary financial accounts, 21.03.20)

(FCA, Announcement of preliminary accounts: Technical Q&A for firms, 22.03.20)

LSE: Inside AIM – Coronavirus: Temporary measures

On March 20, 2020, the London Stock Exchange published an edition of Inside AIM to set out temporary measures being implemented by AIM Regulation to support AIM companies and nominated advisers in light of the COVID-19 pandemic.

AIM Regulation is to apply discretion to certain of the AIM Rules for Companies and AIM Rules for Nominated Advisers (AIM Rules) and will keep the situation under review, particularly the potential impact on financial reporting, and will provide further guidance as necessary.

Temporary suspension of trading

AIM companies will be expected to continue to meet their disclosure obligations without delay so nominated advisers should have a sound understanding of how AIM companies are planning and responding to events so that the necessary disclosures can be made under the AIM Rules. If as a result of restrictions and challenges caused by the coronavirus, an AIM company needs more time to make a fully compliant notification, the nominated adviser should discuss with AIM Regulation whether a temporary suspension is required. Any request should fully explain why suspension is appropriate in the circumstances and, if granted, will be for a limited period to enable the AIM company to make a fully compliant notification.

Suspended AIM companies

AIM Regulation will use discretion and, where an AIM company has been suspended between September 30, 2019 and July 1, 2020, it may extend the suspension period to 12 months rather than six months before the company’s securities are suspended.

Engagement responsibilities for a nominated adviser

Where travel restrictions and social distancing measures make it difficult for a nominated adviser taking on a new client to make a site visit and meet the directors and key managers, if alternative measures that are reasonably available (such as a virtual meeting) are used by the nominated adviser, AIM Regulation will temporarily suspend the requirement for a site visit to the AIM company’s material place of operations.AIM Regulation also accepts that nominated advisers may use telephone or virtual meetings to educate directors about the AIM Rules rather than physical meetings.

(LSE, Inside AIM: Coronavirus – Temporary Measures, 20.03.20)

LSE: Inside AIM – Temporary measures for publication of annual audited accounts

On March 26, 2020, AIM Regulation published this edition of Inside AIM confirming that, to assist AIM companies in the preparation of their annual accounts in the current difficult circumstances, from March 25, 2020, an AIM company can apply to AIM Regulation for a three-month extension to the reporting deadline for the publication of its annual audited accounts pursuant to AIM Rule 19. This extension will be available for AIM companies with financial year ends between September 30, 2019 to June 30, 2020. The request for extension must be made to AIM Regulation by the nominated adviser, prior to the AIM company’s current AIM Rules reporting deadline.

(LSE, Inside AIM - Temporary measures for publication of annual audited accounts, 26.03.20)

Companies House: Companies to receive 3-month extension period to file accounts during COVID-19 period

On March 25, 2020, Companies House announced that companies will be able to apply for a three-month extension for filing their accounts. The application should be made online and if issues around COVID-19 are cited, companies will be automatically and immediately granted an extension.

(Companies House, Companies to receive 3-month extension period to file accounts during COVID-19 period, 25.03.20)

LSE: N07/20 - Temporary changes to Dividend Procedure Timetable: Coronavirus (COVID-19)

On March 25, 2020, the London Stock Exchange (LSE) published guidance for issuers in respect of payment dates under its Dividend Procedure Timetable (DPT) in light of the challenges and uncertainties caused by COVID-19.

The DPT requires cash dividends to be paid within 30 days of the record date but a number of issuers have raised questions with the LSE about deferring or cancelling a dividend payment. From March 25, 2020, the LSE will permit a deferral period of up to 30 business days for payment of a dividend, but no more than 60 business days after the record date. Issuers must inform the Stock Situations Team of any dividend payment deferral and this must be notified without delay. Once the deferral period has expired, the dividend must be paid or cancelled. If cancelled, this must be notified by the issuer without delay. This guidance will remain in place until further notice.

(LSE, N07/20 - Temporary changes to Dividend Procedure Timetable: Coronavirus (COVID-19), 25.03.20)

FCA, FRC and PRA: COVID-19 Joint Statement

On March 26, 2020 the Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and the Prudential Regulation Authority (PRA) published a Joint Statement announcing a series of actions to ensure information continues to flow to investors and support the continued functioning of the UK’s capital markets. This includes:

• A statement by the FCA allowing listed companies an extra two months to publish their audited annual financial reports.
• Guidance from the FRC for companies preparing financial statements in the current uncertain environment. This is complemented by guidance from the PRA regarding the approach that should be taken by banks, building societies and PRA-designated investment firms in assessing expected loss provisions under IFRS9.
• Guidance from the FRC for audit firms seeking to overcome challenges in obtaining audit evidence.

The Joint Statement includes guidance on the reporting timetable for listed companies, with listed companies being urged to review all elements of their timetables for publication of financial information in order to make appropriate use of the time available within regulatory deadlines to ensure accurate and carefully prepared disclosures. It suggests that other measures to allow companies and auditors to focus on the delivery of information to investors and the capital markets include:

• Delaying the filing of accounts in light of the Companies House guidance permitting three-month extension applications.
• Postponing audit tenders, even when mandatory rotation is due.
• Postponing audit partner rotation, subject to agreement of the relevant company’s audit committee.
• Reducing the FRC’s demands on companies and audit firms.
• Extending reporting deadlines for public sector bodies.

(FCA, FRC and PRA, COVID-19 Joint Statement, 26.03.20)

FRC: Company guidance update – Guidance for companies on corporate governance and reporting

On March 26, 2020, in light of COVID-19, the Financial Reporting Council (FRC) published guidance for companies highlighting key areas of focus for boards in maintaining strong corporate governance and high-level guidance on the most pervasive issues when preparing annual reports and other corporate reporting.

In relation to corporate governance, the guidance suggests that boards should:

• Develop and implement mitigating actions and processes to ensure that they continue to operate an effective control environment, addressing key reporting and other controls on which they have placed reliance historically but which may not prove effective in the current circumstances.
• Consider how they will secure reliable and relevant information, on a continuing basis, in order to manage the future operations, including the flow of financial information from significant subsidiary, joint venture and associate entities.
• Pay attention to capital maintenance, ensuring that sufficient reserves are available when the dividend is paid, not just proposed; and sufficient resources remain to continue to meet the company’s needs.

In relation to reporting, the FRC comments that making forward-looking assessments and estimates when preparing financial statements and providing other corporate reports is particularly difficult currently. The guidance is intended to help boards focus on areas of reporting of most interest to investors; and to encourage them to provide clarity on the use of key forward-looking judgements. The guidance covers:

• The need for narrative reporting to provide forward-looking information that is specific to the entity and which provides insights into the board’s assessment of business viability and the methods and assumptions underlying that assessment.
• Going concern and any associated material uncertainties, the basis of any significant judgements and the matters to consider when confirming the preparation of the financial statements on a going concern basis.
• The increased importance of providing information on significant judgements applied in the preparation of the financial statements, sources of estimation uncertainty and other assumptions made.
• Judgement required in determining the appropriate reporting response to events after the reporting date and the extent to which qualitative or quantitative disclosures may be appropriate.

(FRC, Company guidance update March 2020 (COVID-19), 26.03.20)

FRC: Bulletin – Guidance for auditors and matters to consider where engagements are affected by coronavirus (COVID-19)

On March 26, 2020 the Financial Reporting Council published guidance for auditors carrying out audit engagements that may be affected by COVID-19. It is driven by two factors:

• In order to be able to give an audit opinion that is not subject to a disclaimer or qualification due to a scope limitation, the auditor must always obtain sufficient, appropriate audit evidence.
• Even in challenging times, the flow of high quality, independently assured information to support the functioning of capital markets is of fundamental importance. Reporting on audit engagements should be driven by the information needs of users of audited financial statements.
• The guidance sets out a non-exhaustive list of factors auditors should be considering when carrying out audit engagements in the current circumstances, along with guidance on how they might be addressed. The FRC may issue further guidance, if it is required as the situation develops. The FRC notes that the guidance is intended to help auditors deal with the emerging situation and should not be considered to be enduring or long-term solutions that will apply when normal circumstances resume. The FRC will withdraw this Bulletin when circumstances return to normal.

(FRC, Bulletin – Guidance for auditors and matters to consider where engagements are affected by Coronavirus (COVID-19), 26.03.20)

FRC: Revised standards for investment reporting

On March 26, 2020, the Financial Reporting Council (FRC) published revised Standards for Investment Reporting (SIRs) 1000-5000, and a new SIR 6000 dealing with reports on Quantified Financial Benefits Statements (QFBSs) published in accordance with the City Code on Takeovers and Mergers. The revisions had been due to come into force in June 2020, however due to the impact of the COVID-19 pandemic, implementation has now been delayed until September 2020 to allow firms to properly consider and plan for the changes.

The SIRs relate to the work of reporting accountants. SIR 1000 provides basic principles and procedures for all relevant engagements, and SIRs 2000-6000 provide additional principles and procedures for specific types of public reporting. All of the SIRs have been updated to reflect significant changes in regulations (Prospectus Regulation Rules, the UK Listing Rules, the City Code on Takeovers), and auditing standards.

The SIRs will be effective for new reporting accountant engagements starting on or after September 15, 2020. Engagements already underway before that date may be completed using the previous versions of the SIRs.

(FRC, Revised standards for investment reporting, 26.03.20)

BEIS Committee: Delivering audit reform

On March 20, 2020, the Business, Energy and Industrial Strategy (BEIS) Committee launched an inquiry on delivering audit reform. This follows a series of inquiries from the BEIS Committee, from the CMA, Sir John Kingman and Sir Donald Brydon. Oral evidence is to be taken from stakeholders later in the year on the response to the various audit reviews and the BEIS Committee will examine how they can fit together to deliver the necessary reform to the UK’s audit industry. In the meantime a Calkl for Evidence has been launched.

The Call for Evidence raises these questions:

• Do the proposals from the three reviews of audit fit together as a coherent package that can deliver meaningful reform?
• Which reforms can be delivered without legislation and what progress has the Financial Reporting Council made in implementing such reforms ahead of future legislation?
• Will the reforms proposed by the audit industry itself address the failings that were identified by the reviews and the BEIS Committee’s Future of Audit Report?
• When will the Government bring forward its proposals and the necessary legislation where required?
• Will audit reform help track progress made by companies in meeting the UK’s Sustainable Development Goal commitments and in particular Net Zero?
• How will audit reform fit with wider corporate governance reform?

Evidence can be submitted online until May 4, 2020, but this date will be kept under review.

(BEIS Committee, Delivering audit reform – Call for Evidence, 20.03.20)

(BEIS Committee, Delivering audit reform, Business Committee launch follow-up inquiry, 20.03.20)

FRC: 2020/21 strategy for reform published

On March 23, 2020, the Financial Reporting Council (FRC) published its Strategy 2020/21 which it will take forward through its Plan and Budget 2020/21. This follows a consultation on the draft plan and budget in February 2020.

In its announcement, the FRC states that it has already implemented over 20 of the 83 recommendations set out in the review by Sir John Kingman of the FRC, with over 35 more in progress. Primary legislation will be needed to establish the new regulator, the Audit, Reporting and Governance Authority, and to give it formal powers and the FRC has begun preparatory work.

On the CMA review of the audit market, the FRC has been working with the Department for Business, Energy and Industrial Strategy (BEIS) to bring forward solutions for Ministers, and the FRC is also working with BEIS on implementation of the recommendations of the Brydon Review.

(FRC, FRC publishes 2020/21 strategy for reform, 23.03.20)

(FRC, Strategy 2020/231 – Budgets and Levies 2020/21, 23.03.20)