31 October 2016

FRC: Thematic review on certain aspects of tax reporting in company annual reports and accounts

The FRC has issued a thematic review undertaken by its Corporate Reporting Review function on certain aspects of tax reporting in company annual reports and accounts. The reviews supplement the FRC’s monitoring of company reports and accounts enabling a focus on topical areas of corporate reporting.

The FRC found evidence of improvements in the transparency of tax disclosures included in strategic reports and effective tax rate reconciliations, indicating the beneficial impact of the “pre-informing” approach.  There is, however, scope for companies to articulate better how they account for tax uncertainties.  The introduction of new IFRS requirements in this area, expected shortly, presents an opportunity for companies to consider their approach.

The FRC identified opportunities for companies to improve the usefulness of their disclosures of significant judgements and estimates relating to tax.  Good disclosures identified the specific nature of the assumption or uncertainty, quantified the carrying amount subject to uncertainty and provided sensitivity analysis or range of possible outcomes to provide users with a better understanding of the issue.

Geoffrey Green, Chairman of the FRC’s Financial Reporting Review Panel and member of the Conduct Committee, commented

“Companies’ tax arrangements are currently subject to considerable public interest prompting a demand for clear, concise and transparent tax reporting in annual reports and accounts.  This report shares our findings from the thematic review, including examples of good practice, against which companies are encouraged to assess and enhance their own disclosures to ensure they provide high quality information to users in their annual reports and accounts”.

Full press release

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