FRC guidance on coronavirus disclosures and audit issues

The FRC has published guidance on the disclosure of risks and other reporting consequences arising from the coronavirus pandemic. 

Companies should carefully consider what disclosures they might need to include in their year-end accounts, and whether to refer to the impact of the coronavirus on their business in their reporting of principal risks and uncertainties. At the date of publication (18 February 2020), the focus was still particularly on companies operating in, dependent on supply chains in, or having close trading associations with China. However, as the virus continues to spread inexorably through the world, it is clear that many, or indeed all, other companies may also be affected.  The FRC notes that companies will need to monitor developments and ensure that they are providing up-to-date and meaningful disclosure when preparing their year-end reports. However, the sheer speed at which the coronavirus is spreading, and the scale of the infection, are clearly going to make this a monumental challenge for companies. 

The FRC has more recently published guidance for auditors. It notes that the coronavirus is causing a shock to the global economy that could prove sharp and large but should (according to the Bank of England) be temporary.  Restrictions on travel, meetings and access to company sites may give rise to practical difficulties in carrying out audits. Auditors will need to consider:

• risk assessment and whether it needs to be revised;
• how to gather audit evidence, given that the planned audit approach may need to change;
• assessment of going concern and prospects of the company;
• adequacy of disclosures made by management;
• the need for an auditor to reassess key aspects of the audit as a result of the fast-changing situation.

Auditors must also ensure that:

• they provide their client companies with clear expectations concerning the level of disclosure they expect to see in annual reports about the risks and impact of coronavirus on the business;
• companies understand that auditors must have sufficient time and support to carry out their audits, including the ability to reassess work already done to reflect changing circumstances.

The FRC is holding weekly calls with the largest UK audit firms and will continue to monitor the situation carefully.