FRC picks up reporting problems in half of annual reports reviewed
The Financial Reporting Council (FRC) has flagged the annual reports and accounts of over half the listed companies examined by the quarterly Corporate Reporting Review (CRR) team, including Air Partners, Interserve and Metro Bank
28 Jun 2019
The CRR reviewed the quality of annual reports for 53 companies, which resulted in substantive correspondence with 29 companies, some of whom are already facing FRC investigations into accounting issues.
The main problems were identified as failures to comply with financial reporting standards over treatment of revenue recognition, measurement and disclosures, ongoing problems highlighted by the standard setter.
Although the FRC does not issue detailed reports for public review nor does it highlight instances where an investigation occurred as a result of a complaint, but it does expect companies to refer to its exchanges with CRR when the company makes a change to a significant aspect of its reporting in its next annual report and accounts in response to a review.
An FRC spokesperson told Accountancy Daily: ‘Where we mention we have entered into substantial correspondence this doesn’t necessarily indicate any problems with a company’s accounts or reports reviewed by the FRC.
‘It could simply indicate that we sought further clarification or explanations around how accounts have been presented.’
A number of companies were singled out as requiring a full review where accounting issues had come to light in recent annual reports, such as Air Partners, Aggreko, Bobycote, Capital & Regional, Costa Group plc, HSS Hire Group, Interserve, Metro Bank, Provident Financial Group, Prudential, Rotork and ZPG Ltd, owner of the Zoopla brand.
Last year, private jet operator Air Partner reported a £4m overstatement of corporation tax in its accounts and an issue relating to its accounting for deferred income in previous financial results, which were identified when a new finance team who were implementing an update to the IT systems. An internal review in June 2018 stated that the issues had been ‘contained and resolved’.
Outsourcing specialist Interserve went into administration with net debt of £275m in March 2019 and subsequently the FRC announced an investigation into mid-tier audit firm Grant Thornton over its auditing of the financial statements of Interserve for the years ended 31 December 2015, 2016 and 2017.
In March this year Metro Bank reported that it was being investigated by both the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) over the circumstances and events that led to the challenger bank making a significant adjustment to its accounting for risk weighted assets (RWA).
Limited scope reviews arise for a number of reasons, including those conducted when company reports and accounts are selected for thematic review, and may include reviews that have been prompted by a complaint. In accordance with the Conduct Committee’s Operating Procedures, CRR does not identify those companies whose reviews were prompted by a complaint.
CRR’s routine reviews generally cover all parts of companies’ reports and accounts over which the FRC’s Conduct Committee has statutory powers (that is, strategic reports, directors’ reports and accounts).