UK FRC Lab seeks investor views through new survey
The disruption caused by the COVID-19 pandemic is unprecedented in modern investing history and, as such, companies and investors are rapidly adapting to uncertainty.
In such a fast-changing situation it is essential to focus companies’ and investors’ limited resources on the most critical areas and for companies to understand what information investors need.
To address this, the UK Financial Reporting Council’s (FRC) Financial Reporting Lab spoke to the UK Corporate Reporting Users’ Forum (CRUF) for insight from their participants, who represent a broad mix of investment professionals.
Building on this feedback and through a series of discussions with other investor groups, the Lab has produced an infographic identifying the key areas that investors are interested in over the short-term. Broadly these are:
- Clarity on available resources – understanding the exact nature of a company’s cash and liquid funds is critical. This means understanding much more than just the number on the balance sheet. It also means the context behind the cash: where is the cash in the group? What are the restrictions on and consequences of accessing it? And what access does the company have to credit lines, both traditional and non-traditional, such as reverse factoring arrangements?
- Clarity on available actions to conserve resources – what steps can the company take to reduce its outgoings, both fixed and variable? How dependent is that on government support? What is the impact on capital expenditure, dividend and other allocations?
- Interactions with the future – how are decisions being made today supporting or constraining flexibility in the future? What is the longer-term impact on critical stakeholders? How might the company position itself for shifts in the business model?
The findings encapsulated in the infographic are also supported by a recent broader cross-regulatory announcement in the UK from the Prudential Regulation Authority (PRA), Financial Conduct Authority (FCA) and Financial Reporting Council (FRC), announcing a series of actions to ensure information continues to flow to investors and support the continued functioning of the UK’s capital markets. This presents an essential communication for company reporting during this crisis.
The Lab would not have been able to research this area without the help of the CRUF and investors more widely, and this demonstrates the importance of continued dialogue between regulators and investors in these difficult times.
Looking ahead, the Lab will continue to research this area to further explore the information needs of the investor community, including a more in-depth look at what information will be useful to investors when we begin to transition out of the crisis and into a new normal.
As part of this work, the Lab has launched a survey seeking the views of investors in the UK and globally.
I would urge all those in the investor community to complete this survey and make your voice heard on some of the issues you are facing, and what you want to see from the companies you invest in or cover.
Thomas Toomse-Smith is Project Director of the UK Financial Reporting Council’s Financial Reporting Lab. The Lab aims to improve the value of corporate reporting by facilitating discussions on reporting topics between investors and companies. Thomas has worked in corporate reporting, insurance and financial services audit for ten years in the UK and the US. Thomas is a Fellow of the ICAEW.
Disclaimer: The views expressed in the blog are those of the author and do not necessarily represent the views of CRUF participants.