FRC highlights where reporting by smaller companies needs to improve

News types: Guidance

Published: 6 November 2018

Smaller companies should provide more specific disclosures of significant accounting judgements and more quantitative information on key sources of estimation uncertainty according to a new report by the Financial Reporting Council (FRC), Reporting By Smaller Listed and AIM Quoted Companies (‘smaller companies’).

The FRC reviewed the reports and accounts of 40 smaller listed and AIM quoted companies to consider:

  • Alternative performance measures (APMs) and Strategic Reports;
  • Pension disclosures;
  • Accounting policies, including critical judgements and estimates;
  • Tax disclosures; and
  • Cash flow statements.

The topics were selected from previous FRC thematic reviews, which focused on larger companies, and other aspects identified through the FRC’s regular monitoring activity.

While the review identified some better examples of smaller companies’ disclosures, it also identified several areas requiring improvement. Companies should provide more specific disclosures of significant accounting judgements and more quantitative information on key sources of estimation uncertainty. The FRC also found that companies could do more to ensure that the classification of cash flows complies with IAS 7 ‘Statement of Cash Flows’ and that all sections of the report present APMs in a balanced and transparent manner.

The report is relevant to all preparers of accounts and auditors as these findings are similar to the FRC’s conclusions from its review of the UK’s larger companies. Companies may find the ‘reminders’ section of the report particularly helpful when preparing their future reports and accounts.

Paul George, FRC’s Executive Director for Corporate Governance and Reporting, said,
“The better practice examples identified by the thematic review indicate that smaller companies are able to provide high quality information to stakeholders. We expect companies of all sizes to carefully consider the findings from the review to enhance their disclosures. There is scope for companies to provide stakeholders with more tailored information about the areas of their accounts subject to most judgement and the potential effect of material changes in estimates and assumptions.”

Thematic reviews for 2019/20

The FRC will continue to supplement its routine monitoring programme with thematic reviews of aspects of corporate reporting where there is both stakeholder interest and scope for improvement and learning from better practices. In addition to the follow-up thematic reviews of the new IFRSs on revenue and financial instruments, announced on 5 November, the FRC will also undertake thematic reviews of:

  • Impairment of non-financial assets
  • The effect of the new IFRS on leases in companies’ 2019 interim accounts; and

The FRC will select companies for its impairment review predominantly from sectors of the economy that are currently under pressure. It will also review the accounts of those for whom circumstances and events in the current year indicate that impairment may be a significant matter.  Some, but not all, companies in the sample will be pre-informed of the review.

The FRC will also conduct a focused review of the information reported in June 2019 interim reports of a number of companies, focusing on industries where the adoption of the new standard, IFRS 16 ‘Leases’, may have a material effect.

Related links:

Subscriber note issued on 5 November re IFRS 9 and 15

Impairment pdf

IFRS 16 pdf

Notes to editors:

  • The effects of the decision to leave the EU on companies’ disclosures.
  1. The FRC’s mission is to promote transparency and integrity in business.  The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
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