June 17, 2019 Improving financial reporting
What do your published accounts say about your company? The simple answer might be to list areas such as turnover, expenditure and assets. But your accounts should be far more than that, providing investors and others with the information that they need in order to make balanced decisions about their future relationship with you.
However for smaller listed and AIM companies, particularly those with smaller management teams, providing accurate financial information is not always at the top of the priority list. It’s an area which has been identified as a matter for concern by the Financial Reporting Council (FRC); one which they believe may be addressed by helping audit committees to better understand their role.
Whilst the corporate governance codes and associated publications do provide some guidance for audit committees, there was a perception that further guidance was required. Accordingly the Institute of Chartered Accountants in England and Wales (ICAEW) in conjunction with the FRC has issued ‘a practical guide for audit committees on improving financial reporting.’
The guide is specifically aimed towards smaller listed and AIM quoted companies although other organisations could find some benefit from the suggestions contained within the document. The guide starts by setting out the audit committee’s key internal and external relationships, highlighting the way in which audit committees can ‘play a pivotal role in driving up quality of financial reporting by promoting a culture of improvement.’
It then goes on to demonstrate how planning the reporting cycle can be a key factor in leading change. Practical tips such as ensuring that concerns raised within the previous reporting cycle have been revisited and mitigated may seem obvious, but they are areas which can easily be missed or sidelined if the audit committee is overwhelmed with other tasks. Planning and preparing for the audit cycle also comes in for a mention as does making the best use of auditor expertise in order to improve financial reporting.
The guide is also packed with questions for the audit committee to ask themselves, the management team and external auditors; all of which are designed to drive up the quality of financial reporting and ensure that the information provided is of benefit to external reviewers. Launching the guide Dr Nigel Sleigh-Johnson, head of the ICAEW financial reporting faculty said “by asking the right questions at the right time, audit committees can help bring about a step change in the quality of financial reporting.”