UK regulators’ response to COVID-19: update

Since we published our recent article on the measures UK regulators were taking to allow companies to fully consider the impact of COVID-19, a joint statement has now been published by the Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) outlining a series of actions in a bid to ensure that information continues to flow to investors and to support the continued functioning of the UK’s capital markets.

Boards and their professional advisers are urged to utilise the additional time provided to file year end accounts to ensure due consideration to, and disclosure of, material risks and uncertainties arising from the pandemic.

The new measures

The newly announced measures include:

The FCA has announced that it will permit listed companies an additional two months in which to publish their audited financial statements (this does not apply to interim reports).

These companies now have six months from their financial year end to publish. The FCA has strongly recommended that companies make full use of the extra time available and urged market participants not to draw undue adverse inferences if they do.

The FCA has continued to emphasise that the Market Abuse Regulation (MAR) remains in force and companies are obliged to fulfil their obligations regarding inside information as soon as possible. Relevantly, companies must consider whether the pandemic alters what is considered material to a business’s prospects for the purpose of the MAR. The moratorium on publication of preliminary statements of account will end on 5 April 2020, with the introduction of these additional measures.

The FRC has provided guidance to companies on two key issues: corporate governance and reporting.

To maintain strong corporate governance, the FRC has urged companies to:

  • Develop mitigating actions to sustain an effective control environment
  • Consider how to obtain relevant information, including financial information from subsidiaries and other related entities
  • Ensure there is sufficient capital maintenance.

In terms of reporting, the FRC provides guidance to boards on how to consider the most pervasive issues, and particularly areas of most interest to investors.

The PRA has written to CEOs of UK banks to provide guidance on how to best navigate the COVID-19 landscape, particularly when assessing expected loss provisions under International Financial Reporting Standard 9 (IFSR 9).

It is anticipated that firms will significantly overstate expected credit loss, which may negatively impact on future credit conditions and lending. To mitigate this risk, the PRA has stressed the need for consistent and robust IFRS 9 accounting and that firms should consider the effect of COVID-19, but at the same time, the wide-ranging financial support which has been provided by domestic and international governments and central banks to maintain economic stability.

Lenders are also expected to carefully consider their approach to borrowers who are in breach of covenants as a result of COVID-19, with waivers to be considered in certain circumstances. 

For auditors, the FRC has issued a non-exhaustive list of factors to be considered when carrying out audit engagements.

These include:

  • Assessing the extent to which an audit can be undertaken remotely and flagging areas contingent on being physically present (including the inability to hold physical meetings of the audit committee and auditors’ ability to obtain sufficient, appropriate audit evidence)
  • Revisiting risk assessments, including whether the risk of material misstatement due to fraud or irregularity is heightened as a result of changes to internal controls
  • In reporting on-going concern, evaluating whether there is sufficient liquidity for the company to remain solvent through the period of public health restrictions and beyond (with more companies expected to report a material uncertainty related to going concern)
  • Issuing modified (or adverse) opinions, having regard to scope limitation where insufficient appropriate audit evidence can be obtained, the possibility of material misstatements, and limitations on the ability to communicate with those charged with governance.


The current unprecedented situation, and the uncertainty around how long the public health measures will be in place, brings significant challenges in relation to companies’ (and their auditors’) ability to maintain strong corporate governance and to ensure the release of timely, accurate information to the market.

While additional time to file audited accounts will assist with the delays and additional work associated with the pandemic and social distancing measures, there remain real practical challenges to the ability of boards to evaluate the impact of COVID-19 on their businesses, and auditors in obtaining sufficient evidence to complete their audits.

While in the short term, lenders, investors and others are being encouraged to take into account the unique circumstances in which financial statements are being prepared, in the longer term this may not prevent claims against companies, D&Os and their professional advisers, in particular accountants and auditors, arising from a failure to take adequate account of the impact of COVID-19 on their businesses. The inability of boards and audit committees to meet and for auditors to otherwise obtain the evidence required to substantiate audit opinions also increases the risk that material misstatements, fraud and other irregularities may not be identified.

Related item: UK regulators allow companies time to consider COVID-19 impact

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