30 October 2019
The Financial Reporting Council (FRC) has today called for improvements to corporate reporting in an open letter to all Audit Committee Chairs and Finance Directors. The letter reflects findings from the FRC’s Annual Review of Corporate Reporting 2018/19 (published today) and the scope for companies to improve their reporting to address matters of increasing concern to investors and enhance public trust in business.
The FRC expects companies to improve the quality reporting of forward-looking information, the potential impact of emerging risks on future business strategy, the carrying value of assets and the recognition of liabilities. Failure to report on these crucial areas undermines trust in business and can lead to the conclusion that management is either unaware of their potential impact, is being opaque, or is not managing them effectively.
In times of uncertainty, investors and other stakeholders expect greater transparency of the risks to which companies are exposed and the actions they are taking to mitigate the impact of those uncertainties. The FRC expects companies to think beyond the period covered by their viability statement and identify those keys risks that challenge their business models in the medium to longer term and have a particular focus on environmental issues.
The FRC welcomes some improvement in key disclosures of critical judgements and estimates and alternative performance measures (APMs) as reflected in companies’ strategic reports. It will continue to press companies who do not clearly report the specific judgements they have taken or who do not present APMs clearly in accordance with best practice.
The FRC reviewed 207 annual and interim reports for its 2018/19 monitoring activity and conducted three substantive thematic reviews on significant reporting issues including two new reporting standards. Boards are urged to act on the findings when preparing their year-end reports and accounts.
Paul George, Executive Director of Corporate Governance & Reporting at the FRC, said:
“Investors and the general public rightly expect financial reports to be fair, balanced and understandable.
“This is particularly important in periods of uncertainty where heightened transparency is expected.
“High-quality reporting by companies, including candid disclosure of the risks they face, supports trust in business.”