High quality disclosures vital for investors ahead of 2021 interim reporting season and FRC issues Revised International Standard for Review Engagement (UK) 2410 (ISRE (UK) 2410)
Ahead of the 2021 interim reporting season, a recent thematic review by the Financial Reporting Council (FRC) has highlighted examples of good practice in company’s interim reporting and areas where further improvements are required by those responsible for preparing interim reports.
The FRC reviewed the reports of 20 quoted companies across a range of industries to assess the quality of interim reporting. Timely and reliable interim reporting is vital for investors, creditors and other stakeholders to properly understand a company’s financial position, performance and liquidity.
Overall, the FRC was pleased with the quality of interim reports, with most companies considering the FRC’s Covid-19 recommendations and guidance to enhance disclosures, particularly in relation to going concern and the statement of cash flows and related notes.
The key observations that the FRC has made in its thematic review are as follows:
- Management commentaries provided an overview of key events in the first half of the year and how these had affected operations and results. The best examples differentiated the impact that the various stages of the pandemic had on the financial statements.
- Where necessary, companies gave an update of the risk and uncertainties for the remaining six months of the financial year.
- Companies provided detailed explanations of their use of Alternative Performance Measures (‘APMs’) and reconciliations to GAAP measures.
In order to assist preparers of interim reports; KPMG has produced its latest guide to condensed interim financial statements here. The guide is intended to help entities to prepare and present condensed consolidated interim financial statements in accordance with IAS 34 Interim Financial Reporting
Additionally, the FRC has issued revised International Standard for Review Engagement (UK) 2410 (ISRE (UK) 2410) Review of Interim Financial Information Performed by the Independent Auditor of the Entity. The updated ISRE 2410 (Dated May 2021) is effective for reviews of interim financial information for periods commencing on or after 15th December 2021, however, early adoption is permitted.
The key revisions of the standard are as follows:
- Clarification of requirements for directors to assess going concern when preparing interim financial information.
- Requirements for the auditor who has obtained an understanding of the entity and environment as part of the most recent audit to update the understanding when performing an interim review.
- Auditors are now explicitly required to perform review procedures on management’s assessment of the entity’s ability to continue as a going concern where there have been changes made to the assessment performed for the purposes of preparing the last annual review, or where management have made a new assessment for the purpose of preparing the interim financial information.
- The interim review report prepared by the auditor is now required to state that nothing has come to the auditor’s attention that causes the auditor to believe it is not appropriate for the entity to adopt the going concern basis of preparation for the interim financial statements.