FRC calls on firms to account for Brexit impact in annual reports
The Financial Reporting Council (FRC) has told listed companies to lay out how leaving the EU could impact their business in their financial reports due shortly after Brexit.
In an open letter to the UK’s finance directors and audit committee chairs, the FRC said they must clearly identify specific Brexit challenges such as changes in import and export taxes or supply chain delays.
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Management must also spell out the steps they are taking to mitigate any potential impact.
This could mean changing or remeasuring items on balance sheets.
It recognised that many companies face fewer Brexit challenges and will not need to make major disclosures.
“Where there are particular threats … we expect these to be clearly identified and for management to describe any actions they are taking, or have taken, to manage the potential impact,” the FRC told businesses.
The FRC also called on businesses to improve their standards after an increase in basic errors this year.
The council is concerned about the quality of judgements, estimate disclosures and cash flow statements in companies’ financial statements.
It said alternative performance measures – such as earnings before interest, taxes, depreciation and amortisation (Ebitda), operating earnings, and net debt – present challenges and must be clearly defined in reports.
Businesses are reluctant to clearly explain when they fail to comply with the Corporate Governance Code, the FRC said.
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Executive director of corporate reporting, Paul George, said: “A lack of transparency in financial and governance reporting, undermines trust in business. More accurate reporting and better governance practices are needed to reverse this trend.
“The UK faces challenges with corporate reporting after EU exit. Companies should therefore do more to meet the expectations of the market and society in order for the UK to maintain its position as an attractive home for global capital.”