FRC calls for businesses to better report longer-term viability for investors
The Financial Reporting Council (FRC) has called for businesses to better report their longer-term viability and liquidity to investors – particularly during times of economic uncertainty.
It forms part of the financial watchdog’s findings in a review of companies’ viability and concern disclosures amid the Covid-19 pandemic, which has pushed heightened levels of market volatility and financial insecurity.
The FRC urged that “uncertainties that impact viability or going concern should be clearly explained to stakeholders”.
While companies have outlined to investors and shareholders their financial position in regulatory filings and financial results since the pandemic began last year, the FRC said that viability and concern assessments often lacked sufficient qualitative and quantitative detail.
The FRC’s Executive Director of Regulatory Standards Mark Babington explained: “High-quality viability and going concern disclosures are vital for investors and other users of accounts to help them make informed decisions about a company’s liquidity, solvency and longer-term viability.
“This is particularly important during times of uncertainty and economic volatility.”
The regulatory standards lead added that in upcoming full-year results, companies should also outline how they intend to improve their vulnerabilities to economic uncertainty for shareholders.
“Companies should carefully consider the review findings with a view to improving their viability and going concern disclosures in their upcoming annual reports and accounts,” Babington said.
A spokesperson told Morning Wire that investors need detail that “underpins” the judgements made by firms.
For example, where companies are facing significant headwinds – “we expect there to be better and more informative disclosures and more detail around the assumptions they have used because people will be looking at them more closely,” they added.
The FRC also encouraged companies to extend the period over which they assess their viability, while also including ‘more informative’ company specific disclosure which avoids unnecessary ‘clutter’.
The spokesperson added that with financial and regulatory reports getting “longer and longer”, businesses must ensure that the information included is “actually usable”.