Adam Deller is a financial reporting specialist and lecturer

A recent ACCA survey, reviewing corporate reports published prior to or just after the onset of the Covid-19 pandemic, has found that companies were disclosing material uncertainties over going concern and impairment of assets. However, there was a lack of consistency in the reporting of events after the end of the reporting period.

The report calls for maximum transparency from companies to their shareholders and markets. It says that in difficult times, information supplementing financial statements is more important than ever, especially around the business’s strategic responses and giving indications of performance and prospects.

Richard Martin, ACCA’s head of corporate reporting and author of Observed effects of Covid-19 outbreak in corporate reporting, says: ‘It is important for directors to say clearly how they have considered the impact of Covid-19, and demonstrate a robust process in this consideration.

‘They need to answer the key questions that users of financial statements will have about the impact of Covid-19, the steps taken to mitigate that impact and whether the company has the wherewithal to survive.’

The analysis covered the financial statements of 35 companies, 20 with a pre-pandemic year end and 15 with a post-pandemic year end. Of these, 27 were in sectors that would have been expected to be hit hard by the pandemic; eight were in neutral sectors.

Material uncertainty and KAMs

The survey found 10 cases of material uncertainty disclosure and emphasis of matter. In 19 cases, the assessment of the going concern basis was highlighted as a key audit matter (KAM) by the auditors.

Given all the uncertainties caused by the pandemic, it was surprising that there were nine cases where there was neither a material uncertainty disclosed by the company nor a KAM on going concern. Seven of these cases were from companies in the hard-impact sectors.

‘We had expected to see more material uncertainties,’ Martin says. ‘But these will probably come through in later reports. Among the hard-hit sectors, such as retail, a third spoke about uncertainties – something that was also picked up by the auditors.’

Most of the uncertainties concerned refinancing by, or general continuing financial support from, shareholders or lenders. In other cases, the issues were the risk of breaches of covenants related to borrowings.

It is important for directors to say clearly how they have considered the impact of Covid-19

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The report noted, however, that it was not always clear that Covid-19 was the prime factor behind the uncertainties – some of the entities had been loss-making already, such as in the retail sector.

Going concern KAMs were not restricted to companies in the hard-impact sectors – six out of the eight in the neutral sectors had a going concern-related KAM.

For December period ends, the Covid-19 impacts were clearly non-adjusting and the March ones clearly adjusting, but there was some divergence for the February ones, with two treating it as an adjusting event and four as non-adjusting.

Given the widespread large impacts of the Covid-19 measures, it would be expected that all of the pre-Covid-19 sample of 20 would have disclosures on events after the reporting period end included in the financial statements. However, this was not the case in five instances.


For those where the Covid-19 measures were reflected in the financial statements, only two out of 15 did not report any impairments of assets related to Covid-19. One of these was a February year-end and the other was in a neutral sector.

The most common, but often not the largest, impairments were of financial assets, mostly against trade receivables or amounts owed by joint ventures. A number of companies reported the increased uncertainties involved in some of the impairment calculations.

However, asset values may well seem more difficult to estimate than normal, given the uncertainties around the future shape of measures and of economic downturns, but estimates must be calculated and the uncertainties should be managed with disclosures.

Quiet on impacts

A number of companies reported on the extent to which they had made use of government assistance, but few reported much impact in the financial statements. In the great majority of cases there was discussion of the impacts looking forward in the management report and how the company was responding to the changed environment. But there was a significant minority (10) where there was little or no discussion.

Where corporate reports have in the past been primarily historic in nature, they should now include up-to-date and forward-looking information

In calling for maximum transparency to shareholders and markets, the review suggests that where corporate reports have in the past been primarily historic in nature, they should now include up-to-date and forward-looking information.

Even where no material uncertainties are disclosed, good information about the assessment is reassuring and the auditors may well want to identify this as a key audit matter. As the report noted, in these unprecedented circumstances, a purely historical report on 2019 – written, for example, in April or May 2020, with no mention of the pandemic – would read very oddly, when the effect going forward of the emergency measures would have been in every reader’s mind.