July 5, 2016 Reporting by Smaller Listed & AIM companies
The FRC has issued an update on its discussion paper which considered the steps required for “Improving the Quality of Reporting by Smaller Listed and AIM Quoted Companies.” The paper was originally issued last year in response to an identified perception gap between small companies and investors as to the importance of company reporting and accounts.
In effect, small companies believed that investors paid little, if any, attention to company reporting and therefore did not give the preparation of reports and accounts the attention which they might otherwise have deserved. However, investors were calling for more attention to detail and more information to be provided; simply because smaller companies do not generally receive the same level of market analysis as larger companies and therefore annual reports play a proportionately greater role in the investment decision making process.
Whilst neither the FRC nor respondents to the consultation want to increase the reporting burden on smaller listed and AIM listed companies, it is clear that some action needs to be taken in order to improve the quality of reporting for smaller companies. Generally respondents felt that it would be beneficial to continue to use the IFRS framework although investor feedback also suggested that FRS may wish to engage with BIS and listing authorities to explore the correlation between company size and effective reporting.
Other suggestions for the improvement of company reporting included encouraging a greater level of participation in the FRC’s reporting lab alongside providing additional training and support for those preparing reports and accounts, perhaps via CPD regimes. This would include the provision of additional guidance for audit committees, helping them to properly evaluate the adequacy of the finance function.
One FRC suggestion which seemed to have been particularly well-received related to the provision of annual reminders to the boards of smaller quoted companies. It was suggested that these could set out key areas of focus for investors as well as highlighting common errors in the preparation of annual reports. In conjunction with this the FRC also proposes including specific consideration for smaller companies in its Clear and Concise reporting initiative.
Commenting on the consultation the FRC’s Executive Director for Corporate Governance and Reporting, Paul George, said “we will continue to focus on the issues raised in the discussion paper to play our part in ensuring high quality company reporting is achieved by smaller quoted companies.”