December 10, 2020
The Financial Reporting Council (FRC) has today announced its corporate reporting and audit quality review programme for 2021/22 alongside its priority sectors for review.
The FRC’s Corporate Reporting Review team will supplement its routine reviews of corporate reporting with five thematic reviews. These reviews will identify scope for improvement, as well as examples of better practices, in areas of key stakeholder interest.
The FRC’s Audit Quality Review team will pay close attention to the impact of Covid-19, fraud, estimates and climate risk when conducting its programme of audit quality inspections.
In selecting corporate reports and audits for review, the FRC will give priority to the following sectors: travel, hospitality and leisure, retail, property and financial services.
Thematic reviews of corporate reporting
The Corporate Reporting Review team will conduct five thematic reviews during the next year:
· Going Concern and Viability: management’s assessments and disclosures in relation to going concern and viability are of particular importance given the severe pressures that many companies are currently operating under.
· IAS 37 – Provisions, Contingent Liabilities and Contingent Assets: issues relating to compliance with this standard have featured in the FRC’s ‘top ten’ findings for several years.
· Climate Risk follow-up – Streamlined Energy and Carbon Reporting: the FRC will review reporting under these new requirements which apply to accounting periods beginning on or after 1 April 2019. This follows on from the FRC’s recently published review of climate reporting.
· Alternative Performance Measures: this will be a follow-up to the FRC’s 2017 thematic review to assess the extent to which its expectations on use of Alternative Performance Measures have been embedded into reporting practices.
· Interim Reporting: interim reports play an important role as a progress report on companies’ performance and financial position, which is especially necessary in the current environment given the economic uncertainties resulting from Covid-19. The FRC will review compliance with the requirements of the Disclosure and Transparency Rules and IAS 34 to identify areas of better practices. As this thematic will focus on interim reports issued during 2020 it will contribute to the FRC’s 2020/21 output.
Areas of focus for audit quality reviews
As part of the FRC’s programme of audit quality inspections, the FRC expects to pay particular attention to the auditor’s work in the following four areas:
· Covid-19 Impact: to include going concern, impairment of assets, inventory and group audits.
· Estimates: particularly the application of ISA 540 revised and IAS 37.
· Fraud: the FRC will consider how well auditors identify and assess fraud risks.
· Climate Risk: this follows the FRC’s recently published review of climate reporting, which identified the need for auditors to improve their consideration of climate-related risks when planning and executing their audits.
Priority sectors are those considered by the FRC to be high risk for corporate reporting and audit by virtue of economic or other pressures. In selecting corporate reports and audits for review, the FRC will give priority to the following sectors:*
· Travel, Hospitality and Leisure (including airlines, travel companies, hotels & restaurants)
· Retail (particularly involving discretionary expenditure)
· Property (particularly retail and office)
· Financial Services
* Many sectors are currently under significant pressure given the impact of the Covid-19 pandemic and, consistent with prior years, corporate reports and audits selected for review will not be limited to entities in these priority sectors.