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We comment on the FRC Discussion Paper on proposals to improve the quality of reporting by smaller listed and AIM-quoted companies

  • Deloitte FRC letters Image

31 Jul 2015

We have published our comment letter on the Financial Reporting Council Discussion Paper on proposals to improve the quality of reporting by smaller listed and AIM-quoted companies.

The Discussion Paper provides the results of the first phase of an FRC project launched in July 2014 which aims to achieve a step change in the quality of financial reporting by smaller listed and AIM-quoted companies over a three year period.  The first phase focused on gathering and assessing evidence of the issues that smaller listed and AIM-quoted companies face (including being attractive to investors), understanding the barriers to higher quality reporting and then exploring ways that the FRC might assist such companies to address the quality of their reporting so as to improve confidence in the integrity of their financial statements and of the markets as a whole.
 
Overall we support the FRC’s initiative to explore ways in which the quality of reporting by smaller listed and AIM quoted companies (‘smaller quoted companies’) could be improved.  Our key comments are: 
  • we recognise and relate to the issues raised in the Discussion Paper and the challenges faced by smaller quoted companies;
  • despite these challenges we are pleased to note that the FRC has concluded that the quality of reporting by smaller quoted companies is generally of good standard, so the focus is on improving;
  • we agree a company wanting the benefits of being quoted must comply with the additional regulation and transparency that it brings. However, we agree that this is more challenging for smaller quoted companies which typically have fewer resources to dedicate to this compared to their larger counterparts;
  • the success of the proposals relies on buy-in from the smaller quoted companies. They need to understand and recognise the benefit of good corporate reporting, including a reduced cost of capital. In that regard, active investor engagement and feedback on company annual reports is critical to changing behaviour;
  • we believe the tone of any communications or guidance to smaller quoted companies should balance the technical reminders with the desire for clear and concise reporting, i.e. that companies are not being asked to do more, but in light of the changes to IAS 1 on materiality, freeing up time to do the things that matter better; and
  • in respect of the role of the auditor, we treat larger and smaller quoted companies equally. We have, however, taken the areas of suggested improvement, including consideration of the sophistication of the audited entity’s financial and narrative reporting resourcing and expertise, into account when developing our quality and learning plans for the current year.
Further comments and full responses to the questions raised in the Discussion Paper are contained within the full comment letter.

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