News - 2013
24 October 2013 - Project Report: 'Reporting of Audit Committees'.
The Lab has published its report on Reporting of Audit Committees (PDF) which provides insight from companies and investors on effective approaches to audit committee (AC) reporting including the content and the way information is presented. 19 companies and 25 investor and analyst organisations took part in the project that has been timed so that companies can benefit from the report’s observations when drafting their reports for this calendar year.
Revisions to the UK Corporate Governance Code made in October 2012 introduced requirements for audit committees to describe in more detail the work that they do. The Code calls for descriptions of the significant issues considered by AC’s in relation to the financial statements and how they were addressed, how the AC assessed the effectiveness of the external audit process and their approach to appointing the auditor and safeguarding objectivity and independence relative to the use of non-audit services. The Competition Commission has proposed that AC reports should be subject to an advisory vote.
Audit committee reports form part of the conversation between companies and investors building confidence in this important area of governance and showing how it contributes to good financial reporting. The Lab found that investors are keen to gain an understanding of what issues have been the subject of the audit committee’s focus for the year. Taking time to ensure information is disclosed in the most appropriate place in the annual report, allows cross referencing to be used to help investors locate the related information quickly, while avoiding repetition. The report gives examples of what investors are asking for.
The report suggests that audit committee chairmen should:
- Demonstrate ownership and accountability by personalising their report
- Ensure reports are specific to their company and current year’s activities
- Describe in detail actions taken rather than just the functions they serve
- Depict their specific activities during the year and their purpose, using active, descriptive language
- Disclose judgements made for the year, and the sources of assurance and other evidence used to satisfy themselves of the appropriateness of the conclusion
- Consider their audience in describing issues and their context
10 October 2013 – Companies: Are you doing what you can to answer investors’ basic questions about your debt and cash flows?
The Lab has developed a summary of reporting practices that investors have indicated help to answer their basic questions on debt and cash flows, such as:
- How much debt is owed and when is it due? and
- How do operating profits convert to operating cash flows?
The reporting practices were highlighted in the Lab’s three reports: Net debt reconciliations (PDF), Debt terms and maturity tables (PDF), and Operating and investing cash flows (PDF) . The summary can be found here (PDF).
Companies that aren’t already following these practices may be able to enhance their reporting this year based on information already to hand. The Lab’s work was conducted with the help of five companies (BT, National Grid, Shell, Vodafone, and Xchanging) whose disclosures are used in the Lab’s reports to illustrate many of the reporting practices favoured by the investment community. The summary also explains the context of why the practices are important to investors.
The Lab has also updated its Current Projects page on the FRC’s website, providing an update on its projects on Reporting by Audit Committees, Accounting Policy Disclosure and Integration of Financial Review and Financial Statement Information, and Cutting Clutter Case Studies. This page will be updated regularly as projects develop.
08 May 2013 - New Project: Accounting Policy Disclosures and Integration of Related Financial Information
The FRC’s Financial Reporting Lab (the Lab) is calling for listed companies and investors/analysts to participate in a project (PDF) on approaches to disclosing accounting policy information that are considered to be most effective. This project will also explore the ordering of footnotes to the financial statements, as this is a topic that arises when companies integrate accounting policy disclosure with detailed footnote disclosure. We also plan to consider linking or integrating related information on policies and their application, the resulting financial statement information, and the financial review.
The aim of the Lab’s project is to provide insight from the corporate and investment communities on effective approaches to reporting, including both the content and style of presenting information. The project will provide companies with an opportunity to better understand what it is that the investment community believes is most helpful, both within and beyond current requirements.
Companies are requested to indicate interest in participating in this project over the course of the next month. The call for participation can be found here: Opportunity for companies to test Accounting Policy Disclosures (PDF)...
15 March 2013 - Lab Update
The FRC has issued an update from the Financial Reporting Lab on the following topics:
- Recruiting for a Lab Project Director
- Calling for additional companies to participate in the project on Audit Committee Reporting
- Recent Lab reports on ‘Reporting of pay and performance’ and ‘Presentation of market risk disclosure’.
The update can be found here (PDF)
5 March 2013 - Project Report: Reporting of pay and performance
The Financial Reporting Council (FRC) has today issued a Financial Reporting Lab (Lab) project report on Reporting of pay and performance (PDF).
At the request of the Department of Business Innovation and Skills (BIS), the Lab has undertaken a second project on remuneration - this time exploring the views of investors and companies on two new aspects of the draft reporting regulations on remuneration:
- scenario charts demonstrating how directors’ pay varies with performance, and
- a chart comparing CEO pay based on the single figure for remuneration, with company performance, measured using Total Shareholder Return (TSR).
Views were also sought on certain aspects of the Lab’s first report A single figure for remuneration (PDF).
The press notice can be found here.
20 February 2013 - Project Report: Presentation of market risk disclosures
The Financial Reporting Council (FRC) issued a Financial Reporting Lab (Lab) project report on Presentation of market risk disclosures (PDF).
The Lab explored investors’ views on the benefits of presenting risk developments and actions taken in the reporting period separately from policy related information, shown in an appendix. Views were also sought on aspects of the content of market risk disclosures; how they are used and best presented in practice. Changes made by HSBC Holdings plc in its market risk disclosure were used as a basis for discussion.
The findings of this report were mainly discussed in the context of the banking sector; however there are clear messages for all those with significant market risk exposure and indeed all those involved in corporate reporting.
The press notice can be found here.