FRC reviews of annual reports - changes and themes

The accounting profession is currently in the midst of a period of intense scrutiny. Last year, after a string of high profile corporate failures, several inquiries were launched to review the role of the Financial Reporting Council (FRC), the structure of the audit market, the future of audit, and the quality and effectiveness of standards. Further details of the various inquiries can be found here.

All together these reviews cover a wide range of matters and in some cases may take some time to result in real change. However, in other instances change will be more immediate eg, the proposed changes to the FRC’s corporate reporting review process .    

Corporate reporting reviews

As part of Sir John Kingman’s review of the FRC a number of recommendations were put forward in relation to the corporate reporting review process. These include proposals to:

  • Expand the volume of corporate reporting review work.
  • Give the regulator a power to direct changes to accounts rather than having to go to court.
  • Publish corporate reporting review findings, and the full correspondence following all reviews, within a set timeframe.
  • Limit corporate reporting reviews to public-interest entities, except to the extent unavoidable by law.
  • Extend the corporate reporting review process to cover the entire annual report, including corporate governance reporting.

The Department for Business, Energy & Industrial Strategy (BEIS) is now calling for views on the Kingman recommendations. However, it has stated that the proposal to extend the corporate reporting review process to the entire report will take place with immediate effect. Entities within the scope of the FRC’s corporate reporting review process might want to keep this in mind when planning for their next reporting season.

Thematic reviews

In the meantime, the FRC has also issued its draft plan and budget for 2019/20. As expected, this document has been prepared in light of the Kingman recommendations. However, it also provides some interesting insights into areas of focus for upcoming thematic reviews. In particular, the FRC has outlined its plans to:

  • Follow up on its thematic reviews on the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers in June 2019 interim reports.
  • Monitor companies’ disclosures relating to IFRS 16 Leases in 2019 interim reports where it expects to see explanations of the impact of the new standard (which is mandatory from 1 January 2019).
  • Conduct a thematic review of impairment of non-financial assets.

The FRC has also stated a change in previous practice by only making limited use of pre-informing companies of its intention to include their reports in its samples for thematic reviews.

What next?

The Financial Reporting Faculty will be responding to the BEIS consultation on the Kingman recommendations and the FRC’s draft plan and budget, providing further guidance to members in due course. If you have any comments on the matters outlined in this blog then please contact us on frfac@icaew.com.

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