17 Oct Preparing company reports
No matter how much clarity and vision is applied to running a company, when it comes to annual report time, it is all too easy for that clarity to slip. Whilst regulators are leading the drive towards clear and concise reporting, by the time that the auditors, the insurers and others have had their say, the annual report can sometimes finish up as a triumph of negotiation over clarity. So much so that one company director remarked to this writer that running the company was easy compared to finalising the report.
It was good to see therefore that the Financial Reporting Council’s (FRC) latest corporate review has found that “corporate reporting by large public companies is generally of a high standard, particularly among FTSE 350 companies.” The review, which looked at reports published in the year to 31st March 2014, concludes that for these larger entities the query rate is now largely confined to unusual or complex transactions, difficult judgements or subjective estimates; all of which require careful consideration.
However, the FRC still has concerns when it comes to smaller entities including AIM listed companies. The three year project which the FRC set up in April of this year with a view to improving the quality of reporting within smaller entities is in its early stages but it has already identified some areas for concern including the reporting of innovative capital projects and derivatives.
Overall the report highlights ten areas of concern including exceptional & other similar terms, principal risks & uncertainties and accounting policies. In all of these areas the questions raised were prompted by “a lack of sufficient information for a reasonably informed reader to understand the relevant accounting policies or judgements.” The Business Review/Strategic report also gives some cause for concern with questions raised about the review not always tying in with facts as shown in the accounts and listed companies omitting to include information on greenhouse gas emissions, human rights and gender diversity.
Looking forward the FRC counsels companies to consider the effects of forthcoming changes and factor them into the accounts and report at an early stage. These include some major changes to IFRS including ‘Fair Value Measurement’ and accounting for pensions. IFRS 10 requires companies to think carefully about the implications of de facto control over subsidiaries whilst IFRS 15 which will not be mandatory until 2017 also has some far reaching consequences in respect of revenue reporting.