News October 2015 FRC publishes Corporate Reporting Review Annual Report

FRC publishes Corporate Reporting Review Annual Report

22 October 2015

PN 59/15

The annual report of the Financial Reporting Council’s (FRC) Corporate Reporting Review (CRR) activities, has found that the overall quality of corporate reporting remains generally good, particularly by large public companies.   The report also shows that there has been a good response to the FRC’s call for enhanced disclosures about complex supplier arrangements.

The FRC is pleased that an increasing number of companies appear to have conducted ‘Clear & Concise’ reviews of their reports, but continues to see others that would benefit from a similar initiative.  This year’s report continues the FRC’s ‘Clear & Concise’ programme by including a case study demonstrating CRR’s approach to companies that have undertaken specific projects to make their reports and accounts more clear and concise by removing unnecessary disclosure. 

The report acknowledges the challenge to boards of determining what is material information to include in their reports and accounts and notes that materiality should not be used to justify less than transparent reporting about items that are relevant to users such as amendments to prior year accounts.   

The FRC’s assessment is based on a review of 252 sets of reports and accounts in the year to 31 March 2015, of which 76 (30%) companies were approached for further information and explanation. Nine companies were the subject of a press notice or ‘Committee Reference’ as a result of more significant concerns about their financial reports.

Geoffrey Green, Chair of the FRC’s Financial Reporting Review Panel, said:

“We are reassured that the quality of reporting remains high among listed companies as this will continue to attract investment in UK companies. We were also pleased to see some good reporting by some smaller listed and AIM quoted companies although we continued to see evidence of more straightforward errors and lack of focus.
We were generally pleased with the efforts made by boards to embed the Strategic Report requirements in their reports but there is still room for improvement in ensuring that the disclosures support a fair and balanced understanding of companies’ performance and position at the year end.
As reported in the FRC’s Plan and Budget, we are conducting a review of the effectiveness of our corporate reporting review work and will be consulting on any significant changes to our procedures in due course.”

The FRC’s monitoring work is influenced by macro-economic factors that may affect corporate reports. During 2015/16 it is considering:

  • The effect on asset valuations of volatility in commodity prices and in equity and bond markets and;

  • Disclosures of tax risks, accounting policies, judgements and estimates following increased uncertainties  due to challenges by global and European institutions and governments.

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.    In its Corporate Reporting Review work the Conduct Committee seeks to ensure that the provision of financial information by public and large private companies complies with relevant reporting requirements.

The Conduct Committee reviews the directors’ reports and accounts of public and large private companies for compliance with the law. It also keeps under review interim reports of all listed issuers and annual reports of certain other non-corporate listed entities.

The Conduct Committee’s remit and powers in respect of corporate reporting review come primarily from the Companies Act 2006 (CA 2006).

Directors prepare accounts and auditors audit and report on them. The FRC’s corporate reporting review work does not duplicate what directors and auditors do. Directors are responsible for the accuracy of the accounts and for their judgements. It is the role of the Conduct Committee  to enquire into cases where it appears that the requirements have not been followed - primarily where it appears that there is, or may be, a question whether the directors’ report or accounts  complied with the requirements of the CA 2006.