Included in this update: Consultation to delay mandatory ESEF reporting, Government response to BEIS Committee inquiry into Thomas Cook; FRC seeks higher-quality disclosures and more...

Consultation to delay mandatory ESEF reporting

In light of the impact of COVID-19, the Financial Conduct Authority (FCA) has published a consultation on proposed changes to its Disclosure Guidance and Transparency Rules to delay by one year the mandatory European Single Electronic Format (ESEF) requirements for annual financial reporting. The consultation closes on 28 August 2020.

Under the proposals:

• The requirement for all issuers to publish their annual financial reports in XHTML web browser format, replacing the current pdf format, would be pushed back to financial years starting on or after 1 January 2021, for publication from 1 January 2022.
• The requirement for issuers who prepare consolidated annual financial statements in accordance with IFRS to tag basic financial information would be pushed back to financial years starting on or after 1 January 2021, for publication from 1 January 2022.
• The requirement for issuers who prepare IFRS consolidated annual financial statements to tag notes to the financial statements would be pushed back to financial years starting on or after 1 January 2023, for publication from 1 January 2024. 

The FR Lab newsletter mentioned below contains the summarised results of a survey on awareness of, and preparedness for, ESEF.

Government response to BEIS Committee inquiry into Thomas Cook

The Department for Business, Energy and Industrial Strategy (BEIS) has published the government's response to the BEIS Committee's recommendations following the collapse of Thomas Cook, which deals with, among other things, corporate governance, audit reform and executive pay and bonuses. In doing so, the government:

• Re-commits to reconstituting the Financial Reporting Council (FRC) as the Audit, Reporting and Governance Authority (ARGA) as soon as Parliamentary time allows, and in doing so give ARGA stronger powers to scrutinise and enforce compliance with relevant reporting requirements on executive pay and corporate governance.
• Expects to see significant further progress in 2020 by companies in relation to the alignment of executive pension contributions with those of their wider workforce.
• Will consider the proposal both of the BEIS Committee and Sir Donald Brydon that performance indicators used to calculate executive remuneration be subject to audit.
• Agrees that directors' contracts should include malus and clawback provisions allowing companies to withhold remuneration, or recover it if it has already been paid, and suggests that care should be taken to ensure that the provisions are capable of being enforced in practice. It also expects companies to act on these provisions and for shareholders, where necessary, to use their binding vote on remuneration policies to ensure that companies have robust arrangements in place.
• Notes that while it is "well underway" with implementing the findings of its investigations into late payment culture published in June 2019, it does not agree with the BEIS Committee's recommendation for the introduction of a statutory 30 days limit for the payment of suppliers.
• Reiterates its support for both the Hampton-Alexander and Parker Reviews' aspirational targets on diversity, and notes that it will respond to its consultation on Ethnicity Pay Reporting "in due course".

COVID-19: FRC seeks higher-quality disclosures 

The FRC has published its first thematic review of company reporting since the onset of COVID-19. It concludes that although companies have provided sufficient information to enable users to understand the impact that COVID-19 has had on their performance, position and future prospects, some reports —particularly interim reports—would have benefited from more extensive disclosure. The review builds on the guidance contained in the joint statement of the FRC, FCA and Prudential Regulation Authority in March 2020.

The FRC reminds companies that they should:

• Explain the significant judgements and estimates made in preparing their accounts and provide meaningful sensitivity analysis or details of a range of possible outcomes to support any disclosed estimation uncertainty.
• Describe any significant judgements made in determining whether there is a material uncertainty about their ability to continue as a going concern.
• Ensure that assumptions used in determining whether the company is a going concern are compatible with assumptions used in other areas of the financial statements.
• Apply the requirements of IAS 1 to any exceptional or similar items, with income statement sub-totals comprising only items recognised and measured in accordance with IFRS.
• Apply existing accounting policies for exceptional and other similar items to COVID-19 related income and expenditure consistently and not split income and expenses between COVID-19 and non-COVID-19 financial statement captions arbitrarily.
• Prepare interim reports that provide sufficient information to explain the impact that COVID-19 has had on their performance, position and future prospects.

FR Lab's second newsletter of 2020

The Financial Reporting Lab (FR Lab) has published its second newsletter for 2020. This provides an update on the Lab's activities including its recent report on "Reporting in times of uncertainty" and its upcoming reports on "Video, Virtual & Augmented Reality". The newsletter also acts as a reminder of the FR Lab's call for participants on its new project examining section 172 reporting while providing links to a number of other resources and guidance published by the FRC and other regulators in light of COVID-19.

FRS 102, FRS 104 and FRS 105: consultations on proposed amendments

The FRC has published two consultations in relation to its accounting standards. The first sets out proposed amendments to FRS 104 (Interim Financial Reporting) on the basis that the FRC has become aware of an unintentional difference between requirements for assessing and reporting on the going concern basis of accounting when preparing interim financial reports in accordance with EU-adopted IFRS and FRS 104. If taken forward, the amendments will be effective for interim periods beginning on or after 1 January 2021, although early application will be permitted. 

The second consultation sets out proposed amendments to both FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland) and FRS 105 (The Financial Reporting Standard applicable to the Micro-entities Regime). The changes have been proposed in light of rent concessions granted as a result of COVID-19, many of which have included forgiveness of a portion of or all lease payments for an agreed period and the need for clarity on how to account for such circumstances. If taken forward the proposals will apply to accounting periods beginning on or after 1 January 2020, although early application will be permitted.

Comments on both consultations are requested by 1 September 2020.

Brexit: Consequences of withdrawal of EU rules on statutory audit after transition

The European Commission has published a "Notice to stakeholders" which, in contemplation of there being no agreement on the future relationship between the EU and the UK at the end of the transition period, sets out the consequences of such a scenario in relation to statutory audit. In particular, the Notice focuses on the entitlement of UK auditors to carry out statutory audits required by the law of a Member State in accordance with the Statutory Audit Directive and their ability to provide an audit report concerning the accounts of a company incorporated outside the EU whose transferable securities are admitted to trading on a regulated market of an EU Member State.