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. The Discussion Paper highlights a number of factors that contribute to a “higher incidence of poorer quality annual reports by smaller quoted companies than by their larger counterparts”  

In its response, the ICAEW strongly supports the efforts to encourage high quality reporting by smaller listed and AIM quoted companies to consider how such companies might be helped to achieve appropriate improvements. It is noted that FRC has made a number of helpful observations in the paper. However there is a risk of presenting a final set of proposals that embodies something of a one size fits all approach rather than the tailored set of proposal is necessary. They believe that analysis should extend to a careful assessment of the costs to business associated with FRC’s proposed actions and finally the fact that improving the quality of reporting by these companies take some time to achieve. May be there is a need to find new and innovative ways to encourage communication between regulatory bodies, companies and investors. 

The ICAEW’s other key observations on the FRC’s recommendations are: 

• Strong agreement with FRC’s finding that ‘tone at the top’ plays an important role in ensuring high quality reporting.
• A suggestion that the FRC could explore the option of a smaller quoted company seeking accounts preparation services from an accountancy firm that is not its auditor.
• They are not sure of the merits of the proposal of enhanced CPD training for finance staff.
• Further clarification is needed in areas where the FRC has concluded there is uncertainty as to the extent to which auditors can advise companies in relation to their accounts.
• It would be useful to have guidance explaining which aspects of the Code might be more relevant to certain types of company.

 The ICAEW also feels that UK investors would not wish to see smaller quoted or AIM companies moving to an IFRS-lite regime and is not convinced of the merits of such a change.  

 The full comment letter and responses raised to all questions in the invitation to comment is available on the ICAEW website