COVID-19 UK: Capital Markets – FCA, FRC and financial reporting emergency measures – Update


The Financial Conduct Authority took the unprecedented step yesterday (Sunday March 22, 2020) of writing to all issuers who had guided that they were releasing preliminary results in the coming days ahead of the release for final results (which are due within four months of year-end). Under LR9, all premium listed companies are required to obtain the consent of their auditors to the issue of unaudited preliminary results; LR9 does not apply to standard listed companies.

The FCA has “strongly requested” that all listed companies observe a moratorium on the publication of preliminary financial statements for at least two weeks.

The FCA stated that the rationale was that:

“Investors in capital markets rely on trustworthy information on the companies whose instruments they trade. The unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly. It is important that due consideration is given by companies to these events in preparing their disclosures. Observing timetables set before this crisis arose may not give companies the necessary time to do this.

In addition, listed companies and the audit profession are facing unprecedented practical challenges during the COVID-19 crisis. The FCA believes the practice of issuing preliminary financial statements in advance of the full audited financial statements is “adding unnecessarily to the pressure on companies and the audit profession at this moment.”

The FCA noted that the issuing of preliminary financial statements had become a common practice among UK-listed companies but is not required by either the Listing Rules or the Transparency Directive, and further noted that it is common to publish preliminary financial statements considerably earlier than the four months permitted for the filing of full financial statements.

The FCA also confirmed that it was in talks with the Financial Reporting Council and the Prudential Regulation Authority about a package of measures aimed at ensuring companies take the necessary time in these uncertain times to prepare appropriate disclosures and address current practical challenges. The three bodies intend to announce details shortly.

The FCA also reminded companies that the Market Abuse Regulation remains in full force and listed companies are still required to announce inside information to the market as soon as possible, unless a valid reason to delay disclosure under the regulation exists.

Comment: “We can see that the FCA, who are clearly under pressure from the FRC, do not want resources expended on early preliminaries, particularly if matters change before an audit opinion is actually signed. However, several issuers have already pointed out that they see prelims as a way of reassuring all stakeholders that their business remains sound and robust in this difficult time. If the result of the FCA discussions with the FRC are a set of generic COVID-19 risk factors, that would seem to be at odds with all the recent moves to ensure that issuers do not hide behind generic risks. The outcome of the FCA and FRC discussions will be enlightening.”