04 June 2015
The Financial Reporting Council (FRC) has launched a programme of measures to help smaller quoted companies improve the quality of their corporate reports.
A review of the quality of reporting by these companies was conducted by the FRC, and a discussion paper – Improving the Quality of Reporting by Smaller Listed and AIM Quoted Companies – has been published detailing its findings. The UK regulator has also invited feedback on the findings and conclusions.
According to the FRC, evidence suggests that smaller quoted companies believe investors pay little attention to their annual report and hence do not prioritise its preparation to a higher standard. In fact, investors have told the FRC that such reports are important to them, partly because there are fewer analysts’ reports. In addition, companies can lack sufficient skilled resources and are not always up to date with reporting requirements.
Stephen Haddrill, CEO of the FRC, said: 'Smaller quoted companies are critical to generating future jobs and growth in the economy and need access to capital to invest and grow. We recognise that these businesses have limited resources and face challenges in reporting. Our evidence though is that the annual report is important to investors and the quality of reporting can affect investment, rating and lending decisions. Companies, investors, auditors and the FRC all have a role to play in enabling improvements in the quality.’
The FRC will address the issues identified in a number of ways:
Develop with Professional Accounting Bodies and others, ways of providing more focussed training to finance staff;
Provide practical guidance to Audit Committees and Boards on evaluating the adequacy of a company’s financial reporting function and process;
Promote options for reduced disclosures against IFRS against such companies;
Provide annual guidance to boards of smaller quoted companies on the current issues, areas of focus for investors and common errors; and
Enable participation by smaller quoted companies and their investors/analysts in the work of the FRC’s Financial Reporting Lab to identify ways to improve the quality of corporate reporting.
In addition, the FRC will be discussing ways to ensure that companies have appropriate financial reporting resources, with the London Stock Exchange and UK Listing Authority.
Comments and feedback on the FRC’s discussion paper are invited by 31 July 2015.