Press release by ICAEW – (London, 18 April 2016) There is confusion over when, how and how often companies need to tell their shareholders about plans to apply a new and important framework for reduced disclosures in annual accounts, ICAEW has warned. In its response to the Financial Reporting Council’s (FRC) call for comments on the UK standard FRS 101, the accountancy and finance body has alerted the FRC to uncertainty surrounding the requirement in the standard for qualifying entities to notify shareholders before they apply the reduced disclosure regime.
FRS 101 is a trail-blazing UK standard, based very closely on international accounting standards (IFRS) but allowing qualifying entities to exclude from their individual financial statements certain disclosures otherwise required by IFRS. Under FRS 101, those planning to apply its reduced disclosure framework are required to notify shareholders in writing, and those shareholders must not have objected. This is an important safeguard.
FRS 101 is reviewed by the FRC on an annual basis to ensure consistency with changes to international standards, and this year ICAEW in commenting on the review has taken the opportunity to highlight on-going uncertainty over the requirement for shareholders to be notified of a qualifying entity’s intention to apply the standard.
Dr Nigel Sleigh-Johnson, Head of Financial Reporting Faculty at ICAEW said: "Our outreach to members over FRS 101 has identified a worrying degree of confusion about how and when companies need to notify shareholders of plans to use FRS 101. Questions include whether the notification is required once, or every year, or in the second and subsequent years only when there is a change in shareholders?"
There is also some discussion over whether the same requirements should apply to both parent and subsidiary undertakings. The rationale for the latter notifying shareholders is to protect any minority interests where there are plans to provide reduced information in the subsidiary’s financial statements. Whether the same reasoning can, or should, be applied to the parent company is debatable, given that its shareholders will have access to the consolidated group accounts.
Dr Sleigh-Johnson added: "We think that these questions and uncertainties should be considered by the FRC – perhaps as part of the planned 2016/17 review of FRS 101. There may be a case for the FRC developing some sort of commentary or guidance for companies in this area".