FRC reports highlight benefits of Covid disclosures

Investors require “clear and timely” disclosures from companies during the Covid-19 pandemic to inform decision-making and drive capital allocation.

Two new reports from the Financial Reporting Council have attempted to break down what investors need from companies during the current period of uncertainty.

The FRC has recommended that disclosures from companies should include “going concern” considerations but also flagged that boards should consider plausible scenarios which may affect business operations and report how this may affect outcomes.

One report entitled “Covid-19 – Resources, Actions and the Future” highlights several areas where it says investor groups are currently focussed. These include:

• Corporate cash positions
• Expenditure management
• Asset protection measures
• Company value drivers

This report, which builds on a Lab infographic issued in March, concluded that the pandemic “provides an opportunity for companies to demonstrate how they have taken into account a wider range of stakeholders in their decision-making” and that this could be a key area for gaining or losing investor trust.

It stated that investors are “looking for companies to respond strategically, but also humanely, to the challenges they face during the pandemic” and warned that reputational risk could be significant if companies make the wrong choices.

The second Lab report “Covid-19 – Going Concern, Risk and Viability” acknowledged that boards are “naturally apprehensive” about providing overly detailed going concern disclosures but stresses the advantages of doing so.

According to the report, investor expectations are “robust” and quality disclosure in this area helps them to focus on the companies that need “most attention and support”.

In a statement accompanying the publication of the reports, FRC chief executive Sir Jon Thompson said: “These are unprecedented times and investors rightly expect clear and timely disclosures from companies setting out the impact of Covid-19 on their business and long-term prospects.

“Good quality reporting is vital in times of uncertainty and will help investors make informed decisions about where support for companies is most needed.”

He added that investors have a key role to play in supporting jobs and building resilience in the UK economy.

Publication of these two reports were the latest in a series of papers designed to guide the behaviours of auditors, companies and investors on their actions in response to the Covid-19 pandemic.

Last month, the FRC championed the benefits of additional interim reports to investors in its updated guidance on corporate governance and reporting.