Just one of the many aspects of your organisation’s corporate reporting that merit careful consideration during the coronavirus crisis, will be its approach to its strategic report and viability statement.
The adoption of a forward-looking outlook is, of course, crucial for a strategic report at any time, but particularly so in the exceptional circumstances that companies now find themselves in.
Furthermore, a strategic report compiled at this time should be entity-specific, in acknowledgement of the widely varying impacts of COVID-19 on individual companies.
It must be especially considered that not all companies have the same capacity and depth of resources to carry out mitigation plans in relation to the pandemic, in addition to withstanding the outbreak’s other effects.
So, what should your firm’s priorities be for this area of reporting?
In outlining its principal risks and uncertainties, your company will need to account for the specific resources, assets and relationships that the corona virus outbreak is putting at greatest risk, while considering what measures can be adopted to protect them.
A given company’s ability to not only survive the present uncertainty, but also to rebuild its business once the worst of the pandemic has passed, could be largely dependent on how well it protects and retains key personnel, and the associated corporate memory.
All of your company’s stakeholders, including investors, will wish to be well-informed on how the workforce is being retained and supported.
However, the present systematic uncertainties may not leave boards confident in stating a reasonable expectation that their companies will be able to continue in operation and meet their liabilities as they fall over the coming assessment period.
What is the Financial Reporting Council’s advice?
In relation to the “viability statement” that is required for compliance with the UK Corporate Governance Code, the FRC stresses the need for boards to have a “reasonable expectation” of the viability of their companies over the period of assessment.
Nonetheless, the regulator acknowledges that amid the current emergency circumstances and a pace of change that many companies have never before experienced, any reasonable level of expectation will inevitably carry a much lower level of confidence.
The body has also emphasised the importance of boards being clear about the specific circumstances of their companies and the extent of uncertainty about the future.
Furthermore, the FRC has said that a board presenting its company viability statement should also highlight any qualifications or assumptions as necessary.
Boards are advised, when describing any qualifications to their statements, to describe the predictions’ limits, as well as the level of confidence with which they have been made, and the uncertain future events of potentially critical relevance to viability.
Along similar lines, boards should explain the key assumptions made and the future scenarios borne in mind. Many firms, for instance, already develop their statements with the assistance of scenario and stress testing, which companies should continue doing as far as practicable.
Finally, it is also good practice for boards to use reverse stress testing as a means of identifying future scenarios that could precede corporate failures.
Request the help of our trusted corporate governance professionals
These current circumstances, of all circumstances, necessitate fuller disclosure from companies of all sizes and sectors.
Get in touch with our experts in Companies House filing maintenance and related services today, by emailing [email protected], and we will be pleased to lend you the benefit of our specialised and hard-won know-how.
April 2020