Financial reporting tips for smaller quoted companies
The Financial Reporting Council (FRC) and ICAEW have released a guide to help smaller listed and AIM quoted companies improve their financial reporting as it is still falling below expectations
14 May 2019
The guide, Smaller Listed and AIM Quoted Companies – A Practical Guide for Audit Committees on Improving Financial Reporting, is intended to offer practical advice on how smaller quoted companies can improve the quality of their financial reporting and suggested questions for audit committees to ask themselves and those associated with the financial reporting process, including the board, chief financial officer, finance team and external auditors.
The FRC says these questions are a nudge to make smaller quoted companies to reflect on current practices and consider areas for improvement in the quality and accuracy of their reporting in annual reports and accounts.
The standard setter has identified four areas where companies need to improve the quality of their annual report and accounts. These include:
- allocating adequate time and resources available to produce good quality annual reports;
- early engagement on the annual report by those charged with governance;
- developing a deeper understanding of relevant reporting standards and requirements; and
- ensuring appropriate rigour by the auditor in the audit of financial statements and review of annual reports.
Audit committees are seen as integral to improving financial reporting quality as they provide independent oversight of the annual reporting process.
The FRC states: ‘Acknowledging that smaller quoted companies face specific challenges, such as constraints on time and resources within finance departments, the audit committee can play a useful role in helping to effect change.
‘By asking the right questions at the right time and suggesting practical changes, such as those set out in this guide, audit committees can nurture a general culture of continuous improvement in financial reporting.’
Lee Marshall, head of accounting and business advisory at RSM, said: ‘The paper is a practical guide with lots of top tips to improve the quality of financial reporting including sections on the importance of nurturing a culture of improvement, timing and planning.’
Marshall also endorsed the view that audit committees and companies should ‘assess the adequacy of the resources in the finance team’ and then ‘consider whether external expertise is required to help prepare the annual report’.
Marshall said: ‘We are often asked to help clients either prepare the full annual report, or to provide advice on specific aspects of the accounting such as share-based payment advice, or the transition to a new standard.
‘In the latter cases companies are increasingly asking us to review transactions and help with transitions in real time to make sure the accounting is right first time, and well before the year end. This makes the year end process much less stressful as the big challenges have been dealt with and there are supporting papers for the auditors to review.
'With the FRC and ICAEW issuing this report now, it gives directors plenty of time to reflect on the recent reporting cycle, consider how they will resource next year’s annual report production, decide which areas they wish to keep inhouse and consider which areas they will seek help from professionals who are fully up to speed with the requirements of new and existing standards.'