The Financial Reporting Review Panel announces priorities for 2011/12
News types: Corporate Reports, Publications
Published: 25 November 2010
The Financial Reporting Review Panel, part of the Financial Reporting Council (FRC), today announced that its review activity in 2011/12 will focus on the following sectors:
Commercial property
Insurance
Support services
Travel
The Panel will have a particular interest in companies which operate in niche markets or which are outside the FTSE 350 because they are seen to be facing more risks in the current economic climate than larger, more diversified companies. In looking at companies which provide support services the Panel will focus on those with significant exposure to public spending cuts.
Reports and accounts will continue to be selected from across the full range of companies within the Panel’s remit, including large private companies, and will also be selected for review on the basis of company specific factors and complaints.
Panel letters to companies increasingly include questions about the business review and in particular about the identification and description of principal risks and uncertainties. The Panel challenges companies whose disclosures are boiler-plate or take the form of a long list of generic risks. It considers whether the risks identified are the principal risks and whether descriptions are sufficiently specific to enable a shareholder to appreciate the threat to the company.
For quoted companies, the business review is required to include information about environmental matters, the company’s employees and social and community issues to the extent necessary for an understanding of the development, performance or position of a company’s business. Where companies present such information there is an obvious temptation to focus on good news, but the Panel tries to ensure that the information is presented in a fair, balanced and comprehensive manner as required by the Companies Act 2006.
The Panel will continue to focus on the disclosure in the financial statements of those areas where management has made key judgements.
Bill Knight, Chairman of the Panel said:
“Transparency and clarity in financial and narrative reporting is the starting point for shareholder engagement. Bland high level statements in the business review do not help members to judge how the directors have performed their duty to promote the success of the company.
There is an obvious temptation for directors to put the best face on things, but a balanced account is more credible.”
Notes to Editors
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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.
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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.
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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.
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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.