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Law360, London (July 21, 2020, 1:54 PM BST) -- The Financial Reporting Council urged businesses on Tuesday to provide investors with more information about how COVID-19 is affecting operations after it found "room for improvement."
The accounting watchdog's review, which it based on a sample of interim and annual reports and accounts from March, looked into how Britain's businesses and industry is reporting on the effects of the pandemic.
The FRC found that many employers had provided "sufficient information" that could help users such as investors understand the impact of the coronavirus. But there were shortfalls, it found.
According to the study, businesses could improve their disclosures about being a so-called going concern, the information that they give to the market about their ability to continue to operate successfully. The FRC, which regulates accounting and auditing businesses, examined other sectors in its review.
Businesses should clearly explain their assumptions about being a going concern, and any important judgments they made in determining whether there is any uncertainty must be clearly documented, the review found.
The regulator also said that companies should provide a detailed range of possible outcomes for areas that are subject to "significant estimation uncertainty." The number of such disclosures are likely to increase because of COVID-19, the review cautioned.
Businesses were also urged to be consistent in their application of existing accounting policies for "exceptional and other similar items" to income and expenditure linked to the pandemic.
The FRC review also outlined other areas for companies to consider: managers will have to look into whether the pandemic will affect the ability of their company to fulfill its performance obligations.
"This may lead to contract modifications, refund or compensation payments or changes in the probability of receipt of variable consideration," the study said.
Managers should also clearly state what support their company has had from the government and explain how such packages have been accounted for.
Regulators have said they recognize the challenges COVID-19 presents. Although they have been flexible about some rules, they still expect businesses to provide high-quality reports.
--Additional reporting by Najiyya Budaly. Editing by Ed Harris.
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