The UK accounting watchdog, the Financial Reporting Council (FRC), has written to audit committee chairmen and finance directors to highlight a number of priorities for them to consider in the run-up to the annual reporting year-end.
Brexit and the ongoing rumblings over the requirements for reporting distributable reserves figure among the issues singled out for special attention by the FRC.
In light of the referendum vote for the UK to quit the European Union, the FRC says “companies will need to consider the consequential risks and uncertainties in the political and economic environment and the impacts of those risks and uncertainties on their business”.
In the 10 October statement, the FRC writes: “Our position remains that we encourage good disclosure and companies paying close attention to their investors’ views whilst noting that the Companies Act 2006 does not require the separate disclosure of a figure for distributable profits or, specifically, multiple figures for distributable profits.”
In response, an Local Authority Pension Fund Forum (LAPFF) spokesperson said: “No one ever said the distributable reserves would need to one number – any more than suggesting undistributable items should be one number.
“The relevant issue is whether the accounts enable a determination of what is distributable or not based on the numbers as stated in the accounts.
“The FRC has created a non-question to deny any requirement for a single figure for distributable profits. But that’s a red herring.”
Following a request from IPE for the FRC to clarify its position, an FRC spokesperson said: “Our position on this issue is clear – the Companies Act 2006 does not require the separate disclosure of a figure for distributable profits. Ultimately, interpretation of the Act is a matter for the courts.”
Meanwhile, the FRC has urged preparers to assess the impact of the low-interest-rate environment. “In particular,” it said, “careful consideration should be given to the valuation of long-term assets and liabilities – for example, the effects of adjusted discount rates on pension scheme liabilities and suppressed returns on pension scheme assets. Companies may need to provide sensitivity analysis to highlight the potential impacts.”
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