The Financial Reporting Review Panel (the ‘Panel’) has started to review the directors’ reports of public and large private companies, as well as their accounts. This brings the business review within the Panel’s scope for the first time. The change applies to reports for accounting periods commencing on or after 1 April 2006.

There is no change to the Panel’s process for selecting accounts for review. Accounts will continue to be drawn from the full range of companies within the Panel’s remit with a focus at present on the priority sectors announced in December last year – travel and leisure, retail, utility, telecommunications and media. Accounts will also, as before, be selected on the basis of company specific factors and in response to complaints and referrals. A directors’ report will be examined by the Panel in the context of a review of the whole report and accounts, so this is an extension of the scope of the Panel’s review rather than a change in its role.

The requirements for the contents of the directors’ report, including the business review, are set out in the Companies Act. The Panel may approach a company’s directors where there is, or may be, a question whether the report or accounts comply with the requirements of the law.

In its consideration of business reviews, the Panel will consider whether the review is consistent with the accounts and with other material included in the Annual Report and whether it is balanced and comprehensive in the sense that it deals even-handedly with the positive and negative aspects of the development, performance and position of the business.

The Panel’s role does not extend to consideration of whether the business review complies with the non-mandatory ‘Reporting Statement: Operating and Financial Review’ published by the Accounting Standards Board. However, where a company states that it has voluntarily complied with the statement, the Panel will take this into account in its review.

The Panel has today placed a paper on its website which sets out the details of its new remit and explains its approach in more detail. The paper can be accessed on http://www.frc.org.uk/frrp/publications/.

1. The Financial Reporting Review Panel (FRRP) is part of the Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy & Actuarial Discipline Board) and by the Council. The Committee on Corporate Governance, whose members are drawn from the Council, assists it in its work on corporate governance.
2. The role of the Panel is to examine the directors’ report and annual accounts of public and large private companies to see whether they comply with the requirements of the Companies Act 1985 (‘the Act’), including applicable accounting standards. Following implementation of the Accounting Regulation (EC) No. 1606/2002, this may mean compliance with UK or International Financial Reporting Standards. 
3.  Where breaches of the Act are discovered the Panel seeks to take corrective action that is proportionate to the nature and effect of the defects, taking account of market and user needs. Where a company’s accounts or directors’ report are defective in a material respect, the Panel will, wherever possible, try to secure their revision by voluntary means, but if this approach fails the Panel is empowered to make an application to the court under section 245B of the Companies Act 1985 for an order for revision. To date no court applications have been made.
4. The Chairman of the Panel is Bill Knight and the Deputy Chairman, Ian Brindle. There are currently 29 other Panel members drawn from a broad spectrum of commerce and the professions. Individual cases are normally dealt with by specially constituted Groups of 5 or more members.
5. All Press enquiries should be directed to: Carol Page on tel: 020 7492 2460 or email: c.page@frc-frrp.org.uk