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Investors want U.K. companies to reveal in annual reports how they plan to respond to the country’s divorce from the European Union, an investors trade group told Bloomberg Tax.
Investors want to know the details of risks that companies face as the U.K. prepares to exit the EU, a process known as Brexit, and how company boards are managing those potential hazards, The Investment Association said in an Oct. 13 email.
The association, whose 200 members together manage 6.9 billion pounds ($9.2 billion) for clients in the U.K. and globally, said in response to questions that investors expect companies to gauge Brexit’s possible effects despite the uncertainties.
“Whilst the full impact of Brexit is unknown and will differ between companies, as long term investors, our members will want to understand how companies are assessing the potential risk and how it could impact on their business in the future,” the association said.
The U.K. Financial Reporting Council—which establishes accounting and auditing standards for the U.K. and the Republic of Ireland—asked companies in an Oct. 10 letter to consider how their assessments of Brexit’s potential impacts have developed over the past year and to make disclosures in their annual reports that reflect their latest analyses.
A majority of reports that FRC recently examined included disclosures on Brexit risks, the council said, with many companies insisting that it’s too early to determine Brexit’s longer-term effects on business strategies.
“However, many are beginning to identify, in more detail, the specific nature of the likely risks,” according to the letter to companies.
FRC didn’t review the reports to highlight particular instances of reporting on Brexit risks, the council said in an Oct. 13 email response to questions, as the risks companies face depend on their circumstances.
“It could be quite misleading to give examples,” FRC said.
Investors generally have supported the letter and have indicated that they want companies to provide more details on Brexit risks in their annual reports, FRC told Bloomberg Tax.
“They are often frustrated by companies providing boilerplate risk disclosure, or not setting the risks in the context of the business,” the email said.
FRC plans to mention reporting on Brexit uncertainties in its Annual Report of Corporate Reporting, which is slated for release this month.
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The FRC letter to companies is available at https://www.frc.org.uk/document-library/accounting-and-reporting-policy/2017/year-end-advice-letter-to-preparers
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