FRC raises queries in half of corporate reporting reviews

The Financial Reporting Council (FRC) wrote to almost half of the companies whose accounts it reviewed over the past year, raising issues about corporate reporting practice directly with their boards, according to its first public listing of the corporate reporting review (CRR) 

There are 59 companies on the list in total. Half (29) were subject to the CRR’s routine reviews which generally cover all parts of companies’ reports and accounts over which the FRC’s conduct committee has statutory powers, that is the strategic reports, directors’ reports and accounts.

The other half (30 companies) were subject to limited scope reviews. The FRC says these 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. The CRR does not identify those companies whose reviews were prompted by a complaint.

Of the total of 59 companies, in 32 cases the CRR entered into correspondence with the company on corporate reporting matters. It did not raise specific issues with the remaining 27 companies.

The listing does not provide details of what elements of a company’s reporting were challenged. In its explanation of the process, the FRC says the CRR ‘may write to a company if it appears that there is, or may be, a question whether there is a breach of the relevant accounting and reporting requirements. However, questions may be answered satisfactorily by the company without making significant changes to its corporate reporting.’

It is down to the company concerned to provide details of the comments made by the CRR. For example, the London Stock Exchange which was subject to a full review, noted in its 2017 annual report that the board ‘discussed a letter from the FRC following its review of the annual report and accounts for December 2016.

‘The audit committee agreed to update certain disclosures in the 2017 Annual Report disclosures to address the comments from the FRC, in particular the change of definition from non-recurring items to non-underlying items.’

Aviva stated in its 2017 annual report that it had received a comment letter from the CRR team in the third quarter of 2017.

The insurer said: ‘The comment letter focussed on the disclosures of the alternative performance measures (APMs) in our 2016 annual report and accounts. The CRR raised certain questions regarding the composition and labelling of the operating profit measure.

‘Aviva responded to the questions providing clarifying information and proposing specific enhancements to its 2017 annual report and accounts that would address the questions and comments raised.

‘These enhancements, including the relabelling of the ‘operating profit’ APM to ‘group adjusted operating profit’, have been applied in this annual report. The CRR team subsequently confirmed in writing that it had closed its enquiries.’

The CRR agreed to publish the names of companies whose report and accounts it had reviewed, in response to feedback that investors wanted additional transparency of CRR’s activities.

The change applies to companies reviewed as part of CRR’s 2017/18 reporting cycle. Names are published once the company has published its next report and accounts and has had the opportunity to describe the interaction with the FRC in its own words.

Company names published in June 2018 are here.

Report by Pat Sweet

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