UK firms must outline coronavirus business risks, says accounting watchdog
British firms must flag up the full extent of the risks posed by the coronavirus outbreak to their businesses in forthcoming annual reports, according to the UK accounting watchdog.
The Financial Reporting Council (FRC) said companies have a duty to make “up-to-date and meaningful” disclosures to investors on the potential impact of the disease.
It also confirmed it is in talks with accountancy firms over the potential effect that coronavirus – also known as Covid-19 – could have on their ability to sign off accounts, given travel restrictions in China.
UK firms with Chinese subsidiaries can only review audit files within the country, as Chinese data protection laws prevent this being done remotely.
The FRC’s reminder about firms’ obligations to disclose risks comes after technology giant Apple warned over second-quarter results because the coronavirus outbreak in China has hit production of iPhones.
Banking giant HSBC also cautioned on announcing 2019 figures that coronavirus had caused “significant disruption” for its business, especially in mainland China and Hong Kong, and may knock lending and transactions in the region.
An FRC spokesman said: “Given the potential for rapid spreading of the virus, required disclosures will likely change over time as more information about the epidemic emerges.
“Companies will need to monitor developments and ensure they are providing up-to-date and meaningful disclosures to their shareholders when preparing their year-end reports.”
The FRC said it was a “timely reminder” to firms on disclosures – something it also did in the wake of the EU referendum and Brexit vote.
It said companies need to “carefully” consider what disclosures they may need to make in year-end accounts, for those trading in China as well as those that may be indirectly affected.
The regulator said firms may be directly hit if, for example, they have extensive operations or manufacturing bases in China, which could suffer staff shortages and production delays.
But it added that firms without a presence in China may also suffer, such as those with significant trading links or global supply chains dependent on Chinese-manufactured goods.
UK retailers, pharmaceutical firms, hotel groups and banks are among those set to suffer an impact from the outbreak.