We comment on the FRC consultation on changes to its Corporate Reporting review procedures

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07 Jan, 2017

We have published our comment letter on the Financial Reporting Council’s (FRC’s) consultation on changes to its Conduct Committee’s operating procedures for reviewing company reports and accounts.

We are supportive of balanced and proportionate measures which aim to increase the quality and transparency of financial reporting. We agree that the proposed changes will promote more effective and efficient processes, and enhance the transparency of reviews and their outcomes. 

We note that, in line with stakeholders’ requests for more transparency, the FRC has started writing to companies advising them when the FRC has completed a review of their report and accounts but has not identified any substantive matters. However, whilst this is clear from the Consultation Paper, this has not been included in the revised Operating Procedures. We believe this is a positive development for companies and recommend that such a practice be clarified in the revised Operating Procedures as the current drafting does not make it clear that the names of such companies will be included on the regularly published list of closed cases. 

In addition to the proposed changes, earlier in the year we recall the FRC mentioning that it would consider writing to some companies ‘fore-warning’ them of reviews on specific areas in their accounts. However, we could not see this in the revised Operating Procedures. The benefits of such an approach have already been evidenced by the FRC’s thematic review of tax disclosures and confirmed in an FRC press notice published on 31 October 2016. We believe this approach is a good idea and could result in further improvements in the quality of financial reporting in other areas of the annual report. We note that the FRC, in its thematic review of APMs, has confirmed it will be giving advance notice of its intention to review the next annual reports and accounts of two companies. 

Our full comment letter is available here.

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