The Financial Reporting Council (FRC) has today issued a thematic review undertaken by its Corporate Reporting Review (CRR) function on certain aspects of tax reporting in company annual reports and accounts. Thematic reviews supplement the FRC’s monitoring of company reports and accounts enabling a focus on topical areas of corporate reporting.
Supporting its Corporate Reporting Thematic Review: Tax disclosures,
CRR pre-informed 33 FTSE 350 companies that the tax disclosures in their next annual reports and accounts would be reviewed. The FRC found evidence of improvements in the transparency of tax disclosures included in strategic reports and effective tax rate reconciliations, indicating the beneficial impact of the “pre-informing” approach. There is, however, scope for companies to articulate better how they account for tax uncertainties. The introduction of new IFRS requirements in this area, expected shortly, presents an opportunity for companies to consider their approach.
The FRC identified opportunities for companies to improve the usefulness of their disclosures of significant judgements and estimates relating to tax. Good disclosures identified the specific nature of the assumption or uncertainty, quantified the carrying amount subject to uncertainty and provided sensitivity analysis or range of possible outcomes to provide users with a better understanding of the issue.
Geoffrey Green, Chairman of the FRC’s Financial Reporting Review Panel and member of the Conduct Committee, commented
“Companies’ tax arrangements are currently subject to considerable public interest prompting a demand for clear, concise and transparent tax reporting in annual reports and accounts. This report shares our findings from the thematic review, including examples of good practice, against which companies are encouraged to assess and enhance their own disclosures to ensure they provide high quality information to users in their annual reports and accounts”.
Notes to editors:
1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
2. The Conduct Committee is a body authorised under the Companies Act 2006 (the Act) to review and investigate the annual accounts, strategic and directors’ reports of public and large private companies to see whether they comply with the requirements of 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 Conduct Committee 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, strategic or directors’ report are defective in a material respect the Conduct Committee will, wherever possible, try to secure their revision by voluntary means. If this approach fails, the Conduct Committee 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 Conduct Committee maintains a Financial Reporting Review Panel (FRRP). The Chairman is Geoffrey Green and the Deputy Chairs are Joanna Osborne and John Hitchins. There are currently 21 other members drawn from a broad spectrum of commerce and the professions. Individual cases may be dealt with by a specially constituted Review Group of the FRRP.
5. The FRC announced on 1 December 2015 that it would conduct a thematic review of companies’ tax reporting in accordance with existing requirements. The aim of the thematic was to stimulate boards to review their tax disclosures to ensure their annual reports and accounts provided high quality information to investors.
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