Reporting in times of uncertainty – a look forward

13 November 2020

Earlier this year, the FRC’s Financial Reporting Lab published two reports which provided practical guidance for reporting the impact and uncertainties associated with the pandemic -discussed in our previous article here

At that time, there were limited real life examples of disclosures and reporting practice. Since then, reporting has evolved and the FRC’s latest new publications attempt to highlight any developments, supported by recent examples of good disclosures.

Resources, action, the future

The FRC says investors continue to require information around these three key areas and the reporting should reflect the specific circumstances of the business and any actions already taken. The Lab’s new report, ‘COVID-19 – Resources, action, the future – a look forward’ takes a look back at the key messages from earlier this year, and builds on this by providing examples of recent reporting developments as well as thoughts on how reporting may evolve as the impact of the pandemic subsides and businesses recover.

  Recent developments Looking forward
Resources Examples of good disclosures include: 
  • Actions that have been taken to secure access to cash over the short term
  • Details of any government facilities that have been used
  • Explanations of how cash will be utilised, and the expiry dates for facilities
  • Linking the discussion to base and worst case scenarios.

Investors require an understanding of how the cash requirements may change over time, and the company’s plans to use the cash.

As the pandemic continues, the availability of cash may become a risk again, or additional cash may be required to fund current operations and new opportunities.  

Ensure there is clarity on the timeline for repayment of government schemes.


The focus is shifting from actions taken at the start of lockdown to actions now being taken, as government restrictions are being adjusted.

Providing a timeline of events, actions taken and how stakeholders were impacted is an effective method of presentation.

Companies are starting to provide an update of their assessment of the impact of COVID-19. 

A clear explanation of the actions taken by the company at different stages through the pandemic is providing useful information to investors.

This will continue to be important as additional lockdown measures are imposed.

Investors are interested in how actions taken have had an impact on different stakeholders – this is likely to form part of the S172 statement.

The Future

The Lab has observed that:

  • These disclosures tend to be provided in the going concern and viability statements as part of scenario discussions
  • There continues to be a higher than normal level of uncertainty disclosed
  • The expected shape of the economic recovery has changed, and this should result in updated scenarios being provided over time.

Investors have stated that useful information to help them form a view of a company’s future includes:

  • What is management’s view of the company’s prospects?
  • What are the challenges?
  • Differences between geographical locations
  • Are there opportunities for the company?

Read the full report at ‘COVID-19 – Resources, action, the future – a look forward’. 

Going concern and viability statements 

The second publication takes a more detailed look at the reporting of going concern, principal risks and the viability statement. The report focussed on the need to provide open and transparent disclosures about the level of uncertainty faced by the business and also to provide a range of possible outcomes over the short, medium and long term. 

The new report ‘Going concern, risk and viability – a look forward’ picks up on the key messages from investors and whether the disclosures are changing over time. As in the first report, there are useful real life examples highlighting different approaches taken and good disclosures for this tricky area. 

The Lab has highlighted positive emerging developments in disclosures such as:

  • The use of different scenarios such as ‘best case’ and ‘realistic worst case’
  • More information is being provided to support the going concern assessment
  • Impact of scenarios on key metrics, including available financial headroom 
  • Explanation of actions that could be taken if stricter lockdown measures are applied
  • Explanation of how the expected impact on viability has been considered.

The Lab also highlights that disclosures could be improved by avoiding generic information about assumptions used within scenarios and ensuring information within the interim and quarterly reports provides a detailed update.

Read the full report at ‘Going concern, risk and viability – a look forward’.

Thinking differently about risk reporting 

It is not surprising that most companies have included a new risk for COVID-19 within their strategic report. Many companies discuss this as a separate primary risk, as its effects are pervasive and impact many areas of the business. However, this approach may not effectively highlight the individual components of the risk and may make it more difficult to understand how the individual effects of the pandemic risk change over time. This will become a key focus for investors as the world moves into the post-pandemic era.

So, is there an alternative approach? 

A number of companies have included additional disclosures to show the impact of COVID-19 on the existing primary risks rather than having a separate single ‘pandemic’ risk. There will be many different factors affecting companies in different ways, such as:

  • The impact of lockdown on revenue and cash flows
  • Effect on employees
  • Additional funding requirements
  • Impact of additional government regulations
  • Pace of recovery and susceptibility to future lockdowns
  • General economic impact.

This approach is particularly useful to highlight the impacts of the pandemic on distinct areas of the business, discrete mitigating actions and their expected outcomes.

Whichever approach is taken, the report should explain how the risks have changed since the previous annual report.

Additional guidance

Earlier this year the FRC also published the results of its thematic review on disclosures relating to the financial reporting effects of COVID-19 - read more here.