On 8 March 2016, the FRC published a letter of advice to audit committee chairs containing guidance in relation to how issues such as volatile asset and oil prices, uncertainty over interest rates in certain jurisdictions and the UK's EU membership referendum should be dealt with in annual reports and accounts.
The letter highlights that:
- the strategic report in particular provides an opportunity to provide the most current view of prospects and, as such, it should be carefully reviewed by the board to ensure that statements which may have been drafted some time ago in preparation for the reporting season remain pertinent;
- key to the understanding of a company's prospects will be the disclosure of the directors' judgements as to the principal risks and their potential impact and, therefore, more disclosure as to sensitivities may be required to aid understanding;
- accounts should be drawn up on the basis of the conditions existing at the balance sheet date but events or information that come to light at a later date which affect valuations need careful consideration and may need to be disclosed;
- Financial Reporting Standards require companies to disclose material post-balance sheet events, including the nature of each event and its estimated financial impact or a statement that such an estimate cannot be made; and
- audit committee chairs may need to consider whether the events have a material impact on the preparation of the accounts on a going concern basis of accounting and/or whether there are material uncertainties relating to that assessment requiring disclosure.
The letter is available here:
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