Corporate Reporting Review

Overview

In its Corporate Reporting Review work, the Financial Reporting Council's (FRC’s) Supervision Committee considers whether the directors’ reports and accounts of public and large private companies comply with the law (and hence, indirectly, applicable accounting standards). It also focuses on the quality of the reporting. It keeps under review interim reports of all UK listed companies and the annual reports of non-UK incorporated entities with a UK listing. 

The Supervision Committee:

  • develops and operates a programme of review of annual accounts based on risk assessment which is informed by priority sectors that are determined annually;
  • enquires into accounts falling within its remit which come to its attention, whether through selection for review or through complaints;
  • ensures that any published findings of the Supervision Committee in respect of the corporate reporting of an entity are brought to the attention of other authorities so that they can decide whether disciplinary or other sanctions should be applied;
  • liaises with the Financial Conduct Authority and other authorities in the United Kingdom and internationally to foster the consistent application of accounting requirements and to improve the compliance of financial information with reporting requirements;
  • contributes to and seeks to sustain an approach to enforcement that is vigorous, consistent and cost-effective; and
  • seeks an appropriate level of recognition within the financial reporting community so as to maximise the deterrent effect of the Supervision Committee’s corporate reporting review activities.

Selection of reports and accounts for review

In carrying out its corporate reporting review work the Supervision Committee takes a risk-based approach to the review of financial statements. The Reports of FTSE350 companies are selected for review on a rotational basis. They review a sample of listed company reports and accounts each year, focussing on priority sectors such as:

  • travel, hospitality and leisure;
  • retail;
  • property; and
  • financial services.

In addition they may review accounts that are the subject of a complaint.

Undertaking a review

The FRC’s  staff will carry out an initial assessment of a report and accounts to ascertain whether it appears that there is, or may be, a question whether there is a breach of the relevant accounting and reporting requirements. Where it appears that there is, or may be, such a question, the Corporate Reporting Review Director (CRR Director) may write to the Chairman of the company and send a copy of the letter to the Finance Director and Audit Committee Chairman where practicable. Depending on the issues involved there may be several rounds of correspondence with the entity. Historically, in the majority of cases, matters raised are satisfactorily addressed by the company through this type of engagement without the need for further action.

Where, however, a review is not concluded through review by FRC staff, the CRR Director shall refer the matter to the Executive Director of Supervision (‘Executive Director’). If the Executive Director believes that the matter represents a potential breach of the relevant accounting and reporting requirements that should be brought to the Supervision Committee, the Director will write to the company. The letter will explain that the Executive Director is minded to refer the company to the Supervision Committee for it to decide whether to apply to court for an order requiring the directors of the company to prepare revised accounts or a revised report. The matter may be closed without referral if the company then provides adequate explanation, or volunteers to make the required revisions to its report and accounts.

If the matter is not resolved, the Executive Director will provide a report to the Supervision Committee, which will include: the recommendations of the Executive Director and CRR Director, the basis for the recommendations, and relevant explanations and proposals provided by the Company.

Enforcement action

The Supervision Committee will consider the report and, after due consideration of all the circumstances, it may resolve to apply to court for an order requiring the directors of the company to prepare revised accounts or a revised report. Other authorities will be informed of the application as appropriate and a public announcement will normally be made.

In making its decision, the Supervision Committee may consult with the FRC’s advisors or seek other independent advice. It may also request further enquiries and/or representations to be made.

Publicity for cases

In a number of circumstances, the FRC’s Supervision Committee may make a press announcement in respect of its investigation into the accounts or another report of an entity. The most common situation will be on the conclusion of a case where the directors have agreed that the accounts were defective and corrective and / or clarificatory action has been agreed.

The Supervision Committee may also issue generic announcements covering themes identified across its corporate reporting review work.

The FRC also publishes an annual report summarising its actions for the year and suggestions for action by directors for the future.

Correction list for hyphenation

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