FRC highlights climate change and liquidity risk reporting concerns

The UK’s Financial Reporting Council (FRC) has raised concerns about the omission of risks that appear to merit inclusion in its latest annual review of corporate reporting, highlighting the need for greater information relating to climate change risk.

Another major concern related to liquidity risk disclosures, where the FSC noted there was “insufficient detail about undrawn credit facilities (eg their terms, undrawn amounts and whether they were committed)”.

The specific issues over risk reporting came as part of a wider call on firms to ensure reports and accounts remain clear, consistent and relevant against a backdrop of increased economic uncertainty brought by the Covid-19 pandemic.

After publishing its annual review of corporate reporting today (21 October), the regulator said it had reviewed 216 accounts and written to 96 companies with substantive questions about their reports in the last year.

Some 14 companies were required to restate their accounts in instances where significant non-compliance occurred.

Specifically, the FSC said in its report that it has encouraged boards to focus on areas of reporting of most interest to investors, and to provide clarity on the use of key forward- looking judgements, with guidance covering:

  • the need for narrative reporting to provide forward-looking information that is specific to the entity and which provides insight 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.

The FRC said its upcoming monitoring of annual reports will focus on disclosures addressing risk, judgement and uncertainty in the face of Covid-19, climate change and the UK’s exit from the European Union.