The City regulator has stepped in amid concerns about corporate coronavirus updates.
Such is the impact of coronavirus on corporate profits that companies have been rushing out trading updates to keep shareholders informed. But concerns about the quality of information have forced the City regulator to ask all listed companies to observe a moratorium on the publication of preliminary financial statements for at least two weeks.
In a letter to all companies planning to publish updates shortly, but not AIM companies, the Financial Conduct Authority (FCA) wrote:
“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. Observing timetables set before this crisis arose may not give companies the necessary time to do this.
“The FCA believes the practice of issuing preliminary financial statements earlier than required is adding unnecessarily to the pressure on the audit profession and listed companies at this moment.”
Richard Hunter, head of markets at interactive investor, said:
“The request from the FCA that companies delay reporting for two weeks is understandable. But pragmatic as it may be, it will come at a cost.
“At a time of heightened volatility when investors are clamouring for some visibility on earnings, they will be denied the ability even to understand where the on the ground experiences of these companies may be leading. It is also unclear whether the two-week period will need to be extended further until some more accurate forecasts can be provided.
“As such, the lack of visibility will remove some newsflow meaning that the macro data being provided by governments and central banks will become more vital in trying to estimate the economic impact of the virus.”
The FCA request comes as an army of companies prepared to publish results this week and after hundreds issued updates on the anticipated impact of Covid-19 on business.
However, given the situation is changing so fast, with more draconian measures implemented by government, such as forced pub, café and restaurant closures, and no real idea how long they will last, it has been impossible for companies to accurately predict the true impact on profits.
But while the FCA’s approach has merit, shares in these companies continue to trade openly on the stock market, and this decision will leave shareholders and investors in the dark.
It was only five weeks ago that UK accounting watchdog the Financial Reporting Council (FRC) issued guidance to companies and auditors on coronavirus risk disclosures.
“By law, companies are required to disclose principal risks to their business,” it said.
“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.”
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.