01 September 2011

FRC increases transparency in corporate reporting

The FRC published 'Boards and Risk: A Summary of Discussions with Companies, Investors and Advisers', and 'Effective Company Stewardship: Next Steps'. According to these two new reports, companies should improve the way they report to investors on the key strategic risks facing their businesses.

As a result of detailed consultations with companies, investors, auditors and other interested parties, the FRC proposes to ensure that company narrative reports focus primarily on strategic and major operational risks, rather than indiscriminate lists of risks that all companies face. 

The ‘Turnbull Guidance’ will be updated, and the FRC will consider whether changes may also be needed to the UK Corporate Governance Code to reflect lessons from its work on risk and ensure the conclusions of the ongoing Sharman Enquiry on going concern and liquidity risks are taken fully into account.

The FRC’s proposals on risk are part of a wide-ranging set of measures aimed at improving the quality of company reporting, and increasing the information provided by audit committees and auditors about the work that they have done and the judgements or decisions they have made. These include:

• A proposal that the audit committee’s remit should be extended to include consideration of the whole annual report and to ensure the report, viewed as a whole, is fair and balanced;
• Amending auditing standards to ensure that auditors always report the outcome of their review of the whole annual report, rather than, as at present, only when they encounter information that is inconsistent with the information contained in the financial statements;
• Establishing a new Financial Reporting Laboratory to remove roadblocks to effective reporting and promote innovation;
• A proposal to require companies to put their audits out to tender at least once in every ten years, or explain why they have not done so. 

These proposals form part of the FRC's response to the financial crisis of 2007 and 2008, and are the result of an extensive process of consultation with market participants since January this year.

'Effective Company Stewardship: Next Steps' is the FRC's response to over 100 submissions to its consultation published in January 2011. 'Boards and Risk' summarises detailed discussions the FRC has held over the past six months with directors and specialists from listed companies.

Press release

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