21 October 2016

FRC: Financial reporting quality is generally good but companies have room for improvement

According to the FRC’s Annual Review of Corporate Reporting, the introduction of the strategic report has also improved the quality of narrative reporting. Most companies, particularly larger public companies, report in compliance with the accounting framework.

However, the report highlights calls for companies to be more balanced in their reporting of their performance. Failure to acknowledge when things have not gone so well, excessive use of underlying profit figures or inappropriate use of alternative performance measures (APMs) are found too often and erode trust and undermine the quality of corporate reporting.

Annual Review of Corporate Reporting provides the regulator’s assessment of the quality of corporate reporting in the UK based on its monitoring work for the year to 31 March 2016. Of the 192 companies whose reports were reviewed, the FRC raised queries with approximately one third. Most companies concerned have agreed action to resolve the matters satisfactorily, primarily through their future reporting.

Paul George, Executive Director for Corporate Governance and Reporting at the FRC, said,

“Our goal is to deliver a framework for corporate reporting that fosters and supports continuous improvement in the quality of reporting by those we regulate, and which provides investors and other stakeholders with information they can understand and rely on.

Our work on corporate culture this year highlighted that stakeholders and society in general have a vested interest in healthy corporate values, attitudes and behaviours that lead to sustainable growth and long term economic success. High quality corporate reporting can contribute to improved trust in business, so important to a successful economy.”

Commenting on the implications of Brexit for corporate reporting, Paul George added,

“Brexit could have significant implications for the adoption of international financial reporting standards depending on the exit arrangements negotiated by the Government. The FRC continues to support the application of a single set of high quality global financial reporting standards for listed companies. Investors have told us they want comparability when reading company accounts.”

Full press release

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