The Financial Reporting Review Panel (‘the Panel’) today published its activity report based on findings from the Panel’s review of accounts in the year to 31 March 2009 in which:

• 326 sets of accounts were reviewed.
• 112 companies were approached by the Panel for further information or explanation.
• 68 companies have, to date, undertaken to reflect the Panel’s comments in their future reporting.
• 2 companies were the subject of a Panel press release having agreed to restate amounts reported in prior periods.

On the basis of the reviews conducted, the Panel has concluded that the current standard of corporate reporting in the UK is good and that there continues to be improvement in the general quality of IFRS and UK GAAP annual reports and accounts. AIM companies were required to use IFRS for the first time from December 2007 and they seemed to have benefitted from the experience of their listed peers in effecting their transition to IFRS. However, further quality improvements are necessary if they are to match that of their listed counterparts.

The Panel also noted that all companies need to continue to improve their disclosures of financial risks, judgements related to the application of accounting policies and sources of estimation uncertainty. Many markets remain highly volatile and this should be reflected in informative company specific disclosures about the effects of these uncertainties on the amounts reported in their accounts.

Commenting on the findings and recommendations, Bill Knight, Chairman of the Panel said:

“The Panel encourages directors to pay particular attention to the changing risks and uncertainties facing their companies. Disclosure should be full, frank and company-specific and should avoid generic descriptions of the economy which do not help users to understand how the board is responding to the challenges faced by their particular company. This approach is all the more important in the context of a reporting frame-work which relies increasingly on a management approach, based on information used internally by the board to manage their businesses”.

The Panel notes that UK listed companies will need to apply IFRS 8 “Operating segments” for the first time in their June 2009 and subsequent interim (half-year) reports. The Panel anticipates that the new standard may give rise to more segments being reported and that many companies will find it necessary to explain the different accounting policies that they use to measure segment performance. The Panel will be taking a particular interest in the first time application of IFRS 8 and how directors tie in their new segment reporting with the information about the business and any KPIs reported in their business review.

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, Ian Wright and David Lindsell. There are currently 26 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 Ian Wright tel: 020 7492 2330 or at i.wright@frc.org.uk.