News June 2015 FRC launches a programme of measures to improve the quality of reporting by smaller quoted companies

FRC launches a programme of measures to improve the quality of reporting by smaller quoted companies

02 June 2015

PN 33/15

The Financial Reporting Council (FRC) has today launched a programme of measures to help smaller quoted companies improve the quality of their corporate reports.

A discussion paper, Improving the Quality of Reporting by Smaller Listed and AIM Quoted Companies published by the FRC, details its findings following a review of the quality of reporting by these companies and invites feedback on the findings and conclusions.

Stephen Haddrill, CEO of the FRC, said,


“Smaller quoted companies are critical to generating future jobs and growth in the economy and need access to capital to invest and grow. We recognise that these businesses have limited resources and face challenges in reporting. Our evidence though is that the annual report is important to investors and the quality of reporting can affect investment, rating and lending decisions. Companies, investors, auditors and the FRC all have a role to play in enabling improvements in the quality.”

The FRC will address the issues identified in a number of ways:

  • Develop with Professional Accounting Bodies and others, ways of providing more focussed training to finance staff; 
  • Provide practical guidance to Audit Committees and Boards on evaluating the adequacy of a company’s financial reporting function and process;
  • Promote options for reduced disclosures against IFRS against such companies;
  • Provide annual guidance to boards of smaller quoted companies on the current issues, areas of focus for investors and common errors; and
  • Enable participation by smaller quoted companies and their investors/analysts in the work of the FRC’s Financial Reporting Lab to identify ways to improve the quality of corporate reporting.

 In addition, the FRC will be discussing with the London Stock Exchange and UK Listing Authority ways to ensure that companies have appropriate financial reporting resources.

The FRC’s evidence suggests smaller quoted companies believe that investors pay little attention to their annual report and hence do not prioritise its preparation to a higher standard. In fact, investors have told the FRC that such reports are important to them, partly because there are fewer analysts’ reports. In addition, companies can lack sufficient skilled resources and are not always up to date with reporting requirements.
 
Comments and feedback on the FRC’s discussion paper are invited by 31 July 2015.
  
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. Following the FRC’s concerns about the quality of reporting at smaller listed and AIM quoted companies, the FRC initiated a project in 2014, with the aim of looking at whether the quality of reporting matters to investors in smaller quoted companies and how to support companies to improve the quality of their reporting.  The first phase of the project involved gathering and assessing evidence of the issues and challenges in order to gain a better understanding of the barriers to higher quality reporting and exploring ways in which the FRC can support such companies to help them improve the quality of their reporting and increase their attractiveness to investors.  This report sets out the findings from this first phase.

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