UK Eases Corporate Reporting Rules Amid Virus Outbreak

By Najiyya Budaly
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Law360, London (March 26, 2020, 10:24 AM GMT) -- Britain's financial regulators announced a series of measures on Thursday to help listed companies publish their financial results during the economic uncertainty created by the coronavirus pandemic, including extended deadlines.

Financial regulators have announced measures to ease corporate reporting rules for companies listed on the London Stock Exchange. (iStock)

The Financial Conduct Authority, the Bank of England and the Financial Reporting Council set out a package of relief measures and guidance that will ease corporate reporting rules for companies listed on the London Stock Exchange. Banks, insurers and businesses of all kinds face unprecedented challenges in preparing and auditing financial information as COVID-19 continues to spread.

"The FCA, FRC and [Prudential Regulation Authority] strongly encourage investors, lenders and other users of financial statements to take into account the unique set of circumstances arising from COVID-19 which might result in uncertainty in companies' financial positions," the regulators said in a joint statement.

The FCA said that it will give listed companies two extra months to publish their audited annual financial reports. The audited statements are usually published within four months of the end of a company's financial year, which for many is Dec. 31 or March 31.

But the City watchdog said it will not suspend businesses from listing on the stock exchange if they publish their results within six months of the end if their year. The regulator encouraged companies and auditors to make good use of the time as it said they will face challenges if they want to complete financial statements during the outbreak.

"The coronavirus pandemic is causing companies of all types to re-think and re-plan almost all aspects of their business and operations," the FCA said in a statement on Thursday. "We would urge all those companies that feel it appropriate to utilize the additional two months to do so … For a great many companies it will be a sensible decision to make in unprecedented times."

The FCA has already urged companies to delay publishing preliminary financial statements, which are not audited but update investors ahead of their yearly financial statements. The FCA said Thursday that the voluntary moratorium, which allows listed companies the time to assess the impact of the crisis on their accounts, will be lifted on April 5.

The Financial Reporting Council has also issued guidance to companies and auditors that are preparing financial statements. The watchdog told businesses to review their reporting processes to ensure they can continue using them during the outbreak. Companies must also ensure they set aside enough money to meet their needs amid the economic upheaval.

The FRC also encouraged businesses to delay their tenders for new auditors by up to two years. They typically hold costly public tenders every 10 years.

And Sam Woods, deputy governor at the BoE and chief executive of the Prudential Regulation Authority, guided banks on Thursday on how to reflect loans that have not been repaid by customers in their accounts. The direction will help lenders to interpret a 2018 accounting standard, known as IFRS 9.

International Financial Reporting Standard 9, published by the International Accounting Standards Board, forces financial companies to recognize financial losses from permanent hits to their assets, known as impairment losses, at an early stage. But banks fear they will be forced, by the global accounting rules, to set a large amount of money aside to deal with the fallout from the coronavirus.

Woods said in a letter dated Thursday that the guidance will help banks make decisions about expected credit loss in their accounts over the next weeks, before finalizing their year-end financial statement. He told bank chief executives that lenders should make "well-balanced" decisions on how much cash they expect to lose, taking into account relief measures already announced by the government and BOE.

"Any changes made to [expected credit loss] to estimate the overall impact of COVID-19 will be subject to very high levels of uncertainty as so little reasonable and supportable forward-looking information is currently available," Woods told the executives.

He said the guidance "ought to reduce the risk of firms recognizing inappropriate levels of [expected credit loss]." This is important because overstating loss "could prompt behavior that leads to unnecessary tightening in credit conditions," he continued.

--Editing by Ed Harris.

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