The Financial Reporting Council (FRC) has published its Annual Review of Corporate Reporting flagging areas of concern, including the quality of reporting on judgments and estimates, revenue and cash flow statements
The report highlighted a number of problem areas in annual reports and stressed that preparers need to focus on the level of disclosure and transparency in accounts, as well as paying more attention to the timing of revenue recognition, frequently identified as a problem.
The quality of reporting in relation to cash flow statements remained an area of significant concern. In 2020/21, six companies (2019/20: five, 2018/19: four) restated their cash flow statements as a result of FRC enquiries.
Descriptors used in the cash flow statement were sometimes confusing or misleading, such as cash flows described as ‘principal on leases’ including interest.
The FRC also stressed that critical judgment disclosures should be entity-specific and not just repeat the accounting standards. They should explain the specific accounting judgments made and their effects on the financial statements.
