The Financial Reporting Review Panel (‘the Panel’) intends to review impairment disclosures in 2008 accounts and will notify a number of listed companies in advance that their accounts will be subject to review in this respect.

Companies should review their assets for impairment when they draw up their accounts and this is particularly important during an economic downturn. The companies selected for review by the Panel have substantial intangible assets and may be looked to as illustrating best practice.

It is unusual for the Panel to notify companies in advance that their accounts will be subject to review, but these are unusual times. The Panel aims to encourage reporting of the highest standard, not to catch people out, and in this difficult economic climate it seems fair to warn these companies that the extent and clarity of their impairment disclosures, and the assumptions on which they are based, will be subject to scrutiny.

Following review of this aspect of these accounts in accordance with its usual operating procedures, the Panel will write to the companies again either setting out any additional information or clarification it needs to determine compliance with the law or advising that there are no matters that it wishes to pursue.

In October the FRC published a review of information disclosed by 32 listed companies on their testing for impairment of goodwill in their 2007 accounts. The companies whose 2008 accounts are reviewed in this respect will be about the same number and selected on the same basis, namely that they have substantial intangible assets.

The Panel reviews some 300 accounts a year and, in addition to this targeted review, the Panel will consider the adequacy of impairment disclosures in other accounts as part of its usual monitoring routine. The Panel conducts targeted reviews of this nature from time to time. Although it is notifying companies in advance on this occasion it will not necessarily do so in the future.

Commenting on the proposal, Bill Knight, Chairman of the Panel, said:

“The adequacy of impairment disclosures, their extent and clarity and the assumptions on which they are based, are of key interest to users of accounts prepared during a severe economic downturn. It is not the Panel’s aim or practice to catch people out. We think it fair to inform the companies concerned of our approach.”

1. The Financial Reporting Council (FRC) is 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 and Actuarial Discipline Board and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on Corporate Governance.
2. The Role of the Panel is to examine the annual accounts of public and large private companies to see whether they comply with the requirements of the Companies Act 2006 ('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 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 456 of the Act 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 Chairmen are David Lindsell and Ian Wright. There are currently 24 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 and consultation responses should be directed to Carol Page tel: 020 7492 2460 or at c.page@frc-frrp.org.uk or Ian Wright tel: 020 7492 2330 or at i.wright@frc.org.uk