2020 was supposed to be a year of calm for reporting purposes – a chance to take a breath and consolidate all the changes that have happened over the last few years, and focus on improving disclosures already there. Instead, with COVID-19 affecting businesses and individuals, there’s a lot to focus on, so we’re here to help remind you of what you need to be thinking about for December 2020 year ends.
Reporting under IFRS
The IFRS Dec 2020 Illustrative financial statements are available from our website, along with a separate COVID-19 supplement which focuses on disclosures that may arise as a result of COVID-19.
There are no new standards effective for periods beginning on or after 1 January 2020, but the following amendments are effective:
- IFRS 16: COVID-19 related rent concessions
This amendment introduced a voluntary practical expedient, for lessees only, which can be applied to rent concessions granted as a direct result of COVID-19 if certain criteria are met. This is effective for annual periods beginning on or after 1 June 2020, and can be applied earlier – see a summary of the key changes.
- A number of other amendments to standards which are discussed in a previous article include IFRS 3: Definition of a Business, Amendments to IAS 1 & IAS 8: Definition of Material, and Amendments to IAS 39, IFRS 9 and IFRS 7: Interest Rate Benchmark Reform – Phase 1.
While largely applicable to IFRS reporters, UK GAAP reporters will also find the Covid-19 guidance issued by the FRC helpful.
In November the FRC wrote an open letter to Audit Committee Chairs and Finance Directors about the findings of its Annual Review of Corporate Reporting 2019/20 and the improvements it expects to see in the upcoming reporting season, as well as a list of its target areas for the next reporting season which include:
- Going concern and viability disclosures
- Climate Risk follow-up
- IAS 37
- Alternative Performance Measures
- Interim Reporting.
During the year, the FRC also published the findings from its thematic reviews, as well as a number of useful publications from the FRC’s Lab which are aimed at companies looking to improve their ongoing communications about the effect of COVID-19. The reports provide guidance and real-life examples of good disclosures, along with examples of inadequate disclosures:
In addition, the FRC also published guidance on the use of Alternative Performance Measures and exceptional items in the context of the COVID-19 pandemic.
The FRC has summarised its guidance in its Consolidated COVID-19 guidance for companies and auditors.
Reporting under UK GAAP
The FRS 101 and FRS 102 Dec 2020 Illustrative financial statements are available from our website. The main amendments within these financial statements are in relation to COVID-19-related rent concessions. Included within the FRS 101 illustrative accounts are two appendices:
- Appendix 1 - a summary of the disclosure exemptions within FRS 101 and whether these exemptions are subject to equivalent disclosures being included within the consolidated accounts.
- Appendix 2 - a summary of the key accounting differences between FRS 101 and IFRSs.
The following amendments to FRS 102 are effective for periods beginning on or after 1 January 2020:
- A mandatory amendment applying to temporary rent concessions on operating leases granted as a direct consequence of the COVID-19 pandemic, if certain criteria are met. Unlike the IFRS practical expedient, the amendment applies to both lessees and lessors. A summary of the key changes can be found in our article. The disclosure changes are also highlighted in the December 2020 illustrative accounts.
- Amendments to FRS 102: Interest Rate Bench Reform – Phase 1
- Amendments to FRS 102: Multi-employer defined benefit plans.
The changes to narrative reporting for UK incorporated entities, effective from 1 April 2019 and 10 June 2019 respectively, are detailed below. These affect both UK GAAP and IFRS reporters. The main change to statutory disclosures relates to emissions and energy consumption. In addition, the FRC is encouraging public interest entities (PIEs) to provide voluntary climate change disclosures in line with the Task Force on Climate-Related Financial Disclosures ('TCFD') reporting framework and, with reference to their sector, using the Sustainability Accounting Standards Board metrics.
- S172 statement
Last year saw a new s172 statement requirement come into effect. Following a consultation with investors the FRC Lab has released a publication detailing tips on how to make the s172 statement more useful. This will be a helpful tool for businesses looking to enhance their disclosures this year and ensure the statement is effective.
- Emissions and energy consumption
The scope of companies required to provide disclosures of emissions and energy consumption was extended for accounting periods beginning on or after 1 April 2019, so many December 2020 year end reporters will be required to provide such disclosures for the first time this year. This will affect large companies and LLPs, whilst the disclosures already required by quoted companies will be enhanced. A reminder of these requirements can be found here.
- Directors’ remuneration report
Similarly, amendments to Directors’ remuneration reporting are effective for accounting periods beginning on or after 10 June 2019, meaning they will be applied for the first time by December 2020 year end reporters – read more.
The GC100 and Investor Group has also produced some useful guidance on these rules which are sometimes difficult to apply.
- Climate related disclosures
There has been a significant number of developments and publications during the year related to climate change and improving disclosures in this area. We look at why this matters, the findings from the FRC Climate thematic report and expectations for corporate reporting in our article on sustainability and climate change reporting, including a new listing rule for premium-listed commercial issuers requiring TCFD reporting effective from 1 January 2021 which the FCA has now issued.
- Corporate governance
The FRC released its ‘Review of Corporate Governance Reporting’ in November 2020 which assessed the first year in which UK premium listed companies reported under the new 2018 Code. The report sets out their findings against their expectations, and provides examples of good practice and recommendations for improving corporate governance reporting.
There are a number of financial reporting impacts from Brexit that apply for December 2020 year ends, including basis of preparation wording (UK vs EU endorsed IFRS going forward) and audit exemptions. We have a dedicated Brexit hub which provides guidance when considering the financial reporting implications for Brexit risks and uncertainties.
Coronavirus - temporary filing extensions
We previously highlighted filing extensions and additional guidance available when COVID-19 was declared a pandemic. The current position (as at the date of writing) on these extensions are:
Corporate Insolvency and Governance Bill and Companies House filing deadlines
The measures introduced included an easing of the requirements for AGMs and various Companies House filing extensions for specific documents, including financial statements. Annual accounts which are due to be filed with the Registrar by 5 April 2021 will have an automatic 3 month filing extension. As a result, PLCs will have 9 months to file their accounts, private companies and LLPs will have 12 months.
Temporary extension to period for filing with Regulators
During 2020, the FCA announced a two-month extension for filing annual and half-yearly financial statements. This temporary relief for delayed publication of financial statements will, at a minimum, continue to be available to listed companies with financial periods ending before April 2021. This affects issuers with transferable securities admitted to trading on UK regulated markets. The FCA has stated that it will provide sufficient notice when the temporary relief comes to an end.
Similarly, AIM regulation also announced that AIM traded companies could apply, through their NOMADs, for a three-month filing extension for annual accounts. We would recommend that AIM companies consult with their NOMAD if they intend to use this extension.