FRC guidance on how to deal with volatility in annual reports

The Financial Reporting Council has published a letter to audit committee chairs on possible ways to address uncertainty and volatility in annual reports and accounts. It suggests that:

  • the strategic report provides an opportunity to provide the most current view of prospects. The FRC notes that the first draft of the strategic report may have been written some time earlier and recommends that the board review it before it is issued to ensure all the statements in it remain pertinent;
  • directors' judgments as to principal risks and their potential impact are key to an understanding of a company's prospects. In some cases, the range of potential outcomes may be wider than previously reported and more disclosure as to sensitivities may be required;
  • the accounts should be drawn up on the basis of the conditions existing at the balance sheet date but events or information that come to light at a later date that affect valuations may need to be disclosed;
  • accounting standards require companies to disclose material post balance sheet events, including the nature of each event and its estimated financial impact or a statement that such an estimate cannot be made;
  • in some cases, it may be necessary to consider whether events have a material effect on the preparation of the accounts on a going concern basis of accounting and whether there are material uncertainties relating to that assessment requiring disclosure.

The FRC's letter can be found here.