The Financial Reporting Review Panel (‘the Panel’) today published its annual report based on findings from the Panel’s review of accounts in the year to 31 March 2010 in which:

• 308 sets of accounts were reviewed.
• 146 companies were approached by the Panel for further information or explanation.
• 3 companies were the subject of a Panel press release having agreed to restate amounts reported in prior periods.

The Panel was pleased to note a clear improvement in the descriptions of significant accounting policies by management and the highlighting of those areas most affected by their judgement. Particularly in periods of economic uncertainty, users need to be able to understand why management choose one accounting option over another and the effect of doing so.

There is still the opportunity for a step improvement in the general quality of reporting by some smaller listed and AIM quoted companies who lack the levels of expertise of their larger peers.

Narrative reporting, specifically the business review, absorbs an increasing proportion of the Panel’s energies. Letters to companies during the year often included a request for further information to help explain apparent inconsistencies between the narrative information in the front of the report and accounts and the audited accounts in the back end. This is likely to remain a key area of interest for the Panel. We will focus on opportunities for clear linkages between the narrative and accounts; principal risks and uncertainties for example, but also description of the business model which drives the policies and other solutions adopted in the financial statements.

More experience of the new standard on segmental reporting is needed, but the Panel raised a number of questions in this area following its implementation in some companies’ 2009 interim accounts, where managements’ decisions could be better documented and explained. This is an area the Panel will keep under review as practice develops.

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

“The Panel continues to work by agreement with companies to improve standards. Our attention to narrative reporting reflects changes in the law and an increasing call for reports and accounts to tell a coherent story, with an eye to the future as well as the past.”

1. The FRC is the UK’s independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. 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 should be directed to Ian Wright (Director of Corporate Reporting) on 020 7492 2330, email: i.wright@frc.org.uk or Jonathan Labrey (Head of Communications, FRC) on 07760 990345, email: j.labrey@frc.org.uk.