Smaller listed companies and alternative investment market (AIM) quoted firms find it harder to meet high reporting standards than there FTSE 350 counterparts, the Financial Reporting Council (FRC) has warned.
The FRC’s Financial Reporting Review Panel (FRRP) has published the findings of its annual report which focuses on non-compliance aspects and it is aimed at helping boards to identify relevant issues during the coming reporting season.
The FRRP said however, it has noticed a general increase in the quality of reporting among public and large companies in the year to 31 March 2012.
Companies overall have improved the way they report principal risk and uncertainties such as the reporting of mitigating actions.
The FRRP reviewed 326 sets of reports and 130 companies were required to provide further information or explanation.
Once again this year the panel remains concerned about the reporting of some smaller listed and AIM quoted companies that have not yet attained the accounting proficiency of larger companies.
The FRRP is encouraged, though, by the cooperation that boards of directors have offered to further make progress in their reporting activities.
Any dispute’s the board came up against regarding whether or not a report was complied correctly were successfully settled without the need for the panel to bring the case to the court and the companies adopting the FRC recommendations.
It is when smaller listed companies are involved that the panel has warned directors should not underestimate the importance of their legal responsibility to prepare accounts that abide to the law and accounting standards.
Under the Companies Act 2006 companies must prepare a business review enclosed in the director’s report containing a description of the principal risks and uncertainties facing the organisation.
According to the FRRP’s annual report there are shortcomings in the disclosures offered by some boards and the panel has raised concerns over certain reporting practices.
Some companies, for example, provide bullet point headings instead of an accurate description of the principal risks it faces. In other instances companies do not distinguish principal risks from uncertainties and only provide a long list of potential risks.
In this respect the FRRP has encouraged boards of all sizes to explain in their business reviews actions and strategies taken to avoid those risks.
The FRRP also paid particular attention to insurance company reports and accounts, a priority sector for the panel because it lacks comprehensive IFRS standards and specific reporting requirements.
The main concern for the panel lied in the consistency and transparency of the insurer’s reporting practice.
In particular the panel drew its attention to the clarity of presentation of non-IFRS terminology and the description of key accounting policies applied.
The panel also reviewed the reporting of Greek sovereign debt held directly by the UK’s insurers in 2011 fulfilling the request of the European Securities and Markets Authority.