In its Annual Review of Corporate Reporting 2019/20 published Wednesday, the UK’s Financial Reporting Council (FRC) set out ten top areas where reporting can be improved. It also issued a summary of its guidance.
The ten areas that prompt the regulator to ask the most questions of companies are:
- Judgements and estimates;
- Impairment of assets;
- Revenue from contracts with customers;
- Financial instruments;
- Alternative performance measures (APMs);
- Strategic report;
- Statement of cash flows;
- Provisions and contingencies;
- Fair value measurement; and
- Business combinations.
A total of 216 company accounts were reviewed by the FRC, and it wrote to 96 companies with substantive questions about their reporting.
The regulator said the statement of cash flows remains the most common source of identified material errors. And while the FRC said the overall quality of reporting by UK companies has remained consistent in recent years, it had seen “incremental improvements in certain matters” — for example, fewer inconsistencies between disclosures relating to judgement and estimation uncertainty in different parts of the annual report and accounts.
The FRC’s executive director of supervision, David Rule, highlighted the need for companies to prepare high-quality annual reports so that “investors, shareholders, and other users can make timely and informed decisions”. He added: “Given the heightened need for high-quality disclosures as a result of the COVID-19 pandemic, it is vital companies carefully consider the FRC’s findings ahead of the next reporting cycle.”
— Oliver Rowe (Oliver.Rowe@aicpa-cima.com) is an FM magazine senior editor.