FRC consults on revisions to operating procedures for corporate reporting reviews

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14 Apr, 2014

The Financial Reporting Council (FRC) has today published a consultation proposing some changes to the operating procedures of the Conduct Committee. The consultation is open for comment until 16 June 2014.

Under the Companies Act 2006 ("the Act"), the Conduct Committee of the FRC reviews the reports and accounts of public and large private companies to determine whether they comply with the Act and other reporting requirements. Where it appears that those requirements have not been complied with, the Conduct Committee investigates the position and determines the action to be taken, in accordance with their operating procedures, to address any non-compliance.  

The FRC proposals include:

  • Formally reflecting the concept of a ‘Committee Reference’.  Currently, where a Conduct Committee enquiry gives rise to a significant correction or improvement which it considers investors and preparers ought to be aware of but where there is less cause to inform the market at large, it may ask the company to refer to interaction with the Conduct Committee in the annual report and accounts where a change as a result of the investigation is made.  The FRC is now proposing that Conduct Committee operating procedures explicitly refer to Committee References and include the tests that the Conduct Committee applies to ensure that the text included by the company is “fair and balanced”. It also indicates that the Conduct Committee will expect to be given the opportunity to comment on the disclosure that the company makes.
  • An amendment to the operating procedures to allow the names of those companies that have published Committee References and a brief description of the issue to be included within the Corporate Reporting Review Annual Report.  The FRC highlights that this change in operating procedures is proposed as currently Committee References are only known to those who read the specific set of accounts to which it appears.  In the consultation paper, the FRC comments: “we believe that investors and potential investors would benefit if we were clearer about our regulatory outcomes” and that “the citing of corrections which the Committee has secured would allow others to appreciate what has been found to be non-compliant and would illustrate what the Committee finds unacceptable in terms of corporate reporting”.
  • An explanation within the operating procedures that the Conduct Committee’s letter to a company may include references to aspects of reporting other than compliance with mandatory reporting requirements, such as cutting clutter.
  • Amending the operating procedures to clarify how the Conduct Committee manages complaints, including how anonymous complaints are handled and providing a link to the FRC’s reference and advice to whistle-blowers. 

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