FRC shares better practice examples from thematic reviews

10 Nov 2017 11:31 AM

The Financial Reporting Council (FRC) yesterday published three thematic reports to help companies improve the quality of their corporate reporting in acknowledged areas of difficulty.

The reports cover:

They detail findings from the FRC’s 2016/17 thematic reviews to which companies can refer when preparing their next report and accounts. 

Sixty companies were informed, before their year-end, that the FRC would review one of the three themes in their next reports and accounts. Many companies responded by improving the quality of their reporting in the selected area. The thematic reviews analyse the enhanced information provided to readers of the reports, and recognise the most significant improvements, including extracts from the better disclosures which most closely matched the FRC’s expectations.  The FRC expects other companies to use the better examples observed to assess the quality of their own reporting and raise the bar on their disclosures.

Paul George, FRC’s Executive Director for Corporate Governance and Reporting, said:

“The great majority of companies approached clearly reviewed and revised the relevant disclosures prior to releasing their next set of report and accounts, which provided better quality information to the market in a timely manner. Many sharpened, and some shortened, the relevant information with a view to providing more granular detail about the issues that really matter to those reading their reports and accounts and wanting a better understanding of the key issues and of how management is dealing with them.  We expect others to similarly review their own reports and accounts and look to the characteristics of the better disclosures we identified to inform the continuing development of their reporting.”

 Judgements and estimates 

Judgements, where properly separated from estimates, can help investors to understand the quality of management’s decisions. The disclosures required to support estimates indicate the extent to which assets and liabilities may change materially in the next 12 months and can provide valuable input to investor forecasts and inform their expectations.

Improvements that were observed:

The FRC will continue to challenge and expect change by those who do not:

Pension disclosures 

Low interest rates and the economics of defined benefit pension arrangements have increased the need for transparency of pension reporting.

Improvements that were observed:

The FRC will continue to challenge and expect change by those who do not:

Alternative Performance Measures (APMs)

APMs that are clearly presented and chosen to provide a balanced view of a company can be helpful to investors when the supplementary material about the company’s future or past performance, position or cash flows cannot be presented through the financial reporting framework.

Improvements that were observed:

The FRC will continue to challenge and expect change by those who:

Notes to editors:

  1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting transparency and integrity in business. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the Competent Authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
  2. Thematic reviews offer the FRC a means of prompting a step change in the quality of reporting in areas where evidence from our full reviews indicates that there is still room for improvement.  The FRC aims to select themes which resonate with investors and in which there is general public interest which helps to stimulate the appetite for change.