Britain’s financial regulator is asking listed companies to delay publication of their preliminary results for “at least two weeks”, to give them more time to assess the impact of the coronavirus disruption on their profitability, and reduce pressure on staff.
Late on Saturday night, the Financial Conduct Authority wrote to all companies with shares traded in London that had been due to prepare preliminary numbers in the next few days, and asked them to hold off on issuing them to the market.
It has requested that they now observe a two-week results moratorium, to prevent investors acting on out-of-date information.
Preliminary results are published some weeks ahead of full annual accounts, and contain figures that have not been audited by external accountants.
“Investors in capital markets rely on trustworthy information on the companies whose instruments they trade,” the regulator said. “The unprecedented events of the last couple of weeks mean that the basis on which companies are reporting and planning is changing rapidly. It is important that due consideration is given by companies to these events in preparing their disclosures”.
Concern had been growing at the FCA that sticking to typical timeframes for publishing results was not giving companies enough time to adjust figures for the impact of the Covid-19 pandemic on their business activities. Full-year results do not have to be published until four months after a company’s financial year-end but, in practice, many put out preliminary figures considerably earlier than this.
A 2017 study by the Financial Reporting Council, which regulates accounting and auditing, found that 11 per cent of these preliminary results were not checked by auditors, and that proportion rose to 30 per cent among the 20 UK companies that are quickest to report.
Auditors said the move may have been prompted by the results of clothes retailer Next, which recorded a 3.3 per cent rise in full-year revenues, but a 30 per cent decline in just three days after the period end, as the coronavirus hit shopping activity.
“About 40 FTSE 250 companies were due to report this week — the FCA got spooked about the number and how uncertain it would be,” said the head of audit at one large UK accounting firm.
“No one is saying the decision was directly down to Next, but the amount of noise that was created around their results flagged how difficult it is for companies to put out their accounts with any sense of certainty at the moment . . . This definitely does not solve the problem, but it buys some thinking time for companies.”
In addition, the FCA said producing preliminary results as well as fully audited statements was “adding unnecessarily to the pressure on companies and the audit profession at this moment.”
The FCA is already in talks with both the FRC and the Bank of England’s Prudential Regulation Authority about new measures to “address current practical challenges”. Details are expected to be announced in the coming days.
No regulatory change is needed to begin the two-week moratorium, though, as issuing preliminary financial statements is not required by either the UK’s listing rules or transparency directive. However, the four-month deadline from financial year-end will remain for publishing audited accounts.
All of the UK’s regulators have been trying to relieve the burden on companies and their own staff as coronavirus lockdown measures make routine processes more time-consuming. Last week, the Bank of England and FCA announced the postponement of “non-critical” regulatory work — including the cancellation of the 2020 bank stress tests — to allow financial services groups to focus on customers’ needs.
On Friday, the Bank of England’s Prudential Regulation Authority said its supervisors would review their work plans and cancel “non-critical data requests, on-site visits and deadlines” where appropriate. This will include pausing the skilled persons or “Section 166” reviews of the quality of regulatory reporting by banks including Goldman Sachs and Morgan Stanley.
Application processes for individuals seeking to carry out senior manager functions will also be reviewed to make them less time-consuming, and both the central bank and PRA will simplify their programmes of regulatory change. Deadlines for responding to new rules on IT systems resilience will be extended to October 1. In addition, the PRA hinted that there may be flexibility on introducing the Basel III regime of banks’ capital requirements.
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