The Financial Reporting Council has today published “An update for directors of listed companies: Responding to increased country and currency risk in financial reports” (the Update).
The FRC has issued this Update to highlight significant issues that directors may address “when considering how best to provide a balanced and understandable assessment of a company’s position and prospects in the context of increased country and currency risk” in annual and half-yearly financial reports. The Update sets out various codes and regulations – including the UK Corporate Governance Code, the Listing Rules and IFRS – that may require a company to make these risk-based disclosures. The accompanying FRC press release is here.
The update specifically mentions the risks arising from regime change in the Middle East, the funding pressures on “certain European countries” and the curtailment of capital spending programmes, and sagely notes that the “outcome of these events remain uncertain”.
The FRC suggests that the issues directors could consider discussing in financial report disclosures include:
- “The company’s exposure to country risk, direct or to the extent practical indirect, through financial instruments but also in terms of exposure to trading counterparties (customers and suppliers);
- The impact of austerity measures being adopted in a number of countries on the company’s forecasts, impairment testing, going concern considerations, etc.;
- Possible consequences of currency events that are not factored into forecasts but may impact reported exposures and sensitivity testing of impairment or going concern considerations; and
- A post balance sheet date event requiring enhanced disclosures to avoid misleading investors.”
The Update also observes that “consideration should also be given to outcomes such as one or more Euro area countries being forced to exit the Euro area”.
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