24 October 2018

FRC pushes companies for improved quality reporting

In an open letter to Finance Directors and Audit Committee Chairs, the FRC has called for improvements in key areas of corporate reporting, including key accounting judgements and estimates, eliminating basic errors and how companies have applied the Principles of the UK Corporate Governance Code.

The letter draws on findings from the FRC’s work on corporate governance and corporate reporting in ‘Annual Review of Corporate Governance and Reporting 2017/18’, published today. It also refers to topical areas of reporting, including the UK’s exit from the EU.  
The FRC reviewed 220 annual and interim reports for its 2017/18 monitoring activity and conducted three substantive thematic reviews on significant reporting issues. Companies and their auditors cannot overlook the basics and must ensure observance of the specific rules and requirements of accounting standards on which investors rely. 
Key findings of corporate reporting

• The most significant concerns with financial statements include judgements and estimate disclosures and cash flow statements.
• Frequent challenges in the strategic report include the use of Alternative Performance Measures and whether reports are fair, balanced and comprehensive.
• Viability Statements have brought a greater focus on risk management but could be enhanced to show more clearly how companies have assessed their prospects and viability.

Key findings of corporate governance

• Reported compliance with the Code is high. 95% of FTSE 350 companies report that they comply with all but one or two of the 55 provisions. However, reporting on how companies have applied the Principles in the Code has been inadequately covered due to an excessive reliance on compliance with the provisions,
• Companies remain reluctant to explain clearly when they don’t comply with Code provisions. The quality of explanations is disappointing - such explanations are essential to the successful operation of the Code. They must be thoughtful and provide a clear rationale for the action the company is taking.  

Full press release

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