The Financial Reporting Review Panel today announced that its review activity in 2010/11 will focus on the following sectors:

Commercial property
Advertising
Recruitment
Media
Information technology

Banking, house-builders and travel and leisure have featured as priority sectors for the last two years. As companies enter the next stage of the recession where the outlook for corporate spending is uncertain, the Panel is turning its attention to sectors that rely heavily on discretionary spend and which might be stretched in the short term.

Advertising, media, recruitment and technology all featured in the Panel’s priority list last year as deserving attention but this year they take centre stage.

Annual reports and accounts will continue to be selected from across the full range of companies within the Panel’s remit and will also be selected for review on the basis of company specific factors and complaints.

Recent economic pressures on companies have led some to make changes to the way in which they do business, particularly where this helps them to manage their cash flow. These companies may need to take a fresh look at their accounting policies that impact on the measurement of earnings, such as revenue recognition and the expensing of costs, to ensure that they remain appropriate. The reporting and accounting impact of changes to business models is likely to be a focus of the Panel’s work for 2010/11.

Commenting on areas of reporting where this might be reflected, Bill Knight, Chairman of the Panel said:

“Companies who are seeing their business models develop to meet the challenges of the recession will need to reconsider their revenue recognition policies to ensure that they still reflect their business activities. The Panel will pay particular attention to the accounts of those companies which appear to apply aggressive policies compared with their peers.”

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 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 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 Carol Page tel: 020 7492 2460 or at c.page@frc-frrp.org.uk