On 17 January 2012, the Financial Reporting Council (FRC) published an update for directors of listed companies on responding to increased country and currency risk in financial reports. The update was prompted by current economic uncertainties in a number of countries. It intends to highlight some of the more significant issues directors may reflect upon 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.
The update indicates that the issues directors could consider include, where relevant: (i) exposure to country risk, direct and indirect, through financial instruments and trading counterparties (customers and suppliers), (ii) the impact of austerity measures in some countries on the company’s forecasts, impairment testing, going concern considerations etc, (iii) 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 (iv) a post balance sheet date event requiring enhanced disclosures to avoid misleading investors.
The update identifies some of the more significant annual and interim reporting requirements that directors may consider where a company has material exposure to country and/ or currency risk.
View the FRC guidance (7 page pdf).