The Financial Reporting Council (FRC) has signalled its intention to issue annual reminder letters aimed at smaller quoted companies highlighting key areas of focus for investors, along with a range of other initiatives intended to improve audit consistency and comparability
In update on an earlier discussion paper, the regulator summarised the feedback to its report on the quality of reporting by smaller quoted companies and set outs progress against its proposals.
The FRC says there is agreement that there should be a common reporting framework for all quoted companies, with IFRS the most appropriate choice.
While it was reported that smaller quoted companies believe investors pay little attention to their annual reports and hence do not prioritise their preparation, the FRC said research showed investors say annual reports do matter to them, particularly because there are fewer analysts’ reports in that segment of the market.
The consultation did not support proposals for a review of the Responsible Individual registration process. The FRC says it has decided not to pursue this on the grounds it would impact smaller audit firms hardest and it wants to be sure there is evidence of a significant problem before proceeding.
Instead the FRC will continue to send out an annual letter covering key issues. The FRC says reaction to its first reminder letter to smaller quoted companies, sent in November 2015, has been positive and said ‘auditors report that it has been a useful tool for focusing their discussions’.
There are also plans to encourage more participation in Financial Reporting Lab initiatives by smaller quoted companies, as well as further practical guidance for audit committees on evaluating the quality of the financial reporting function and process. The FRC is looking at ways to provide more focused and practical support for preparers through training and CPD regimes.
In addition, respondents were virtually unanimous in welcoming the proposal for the FRC to consider whether there was a need for more clarity around the boundaries of how far auditors can go to assist smaller quoted companies with financial reporting issues while maintaining an appropriate level of independence.
Paul George, FRC’s executive director for corporate governance and reporting, said: ‘Overall feedback from respondents was generally supportive of the measures we proposed in our discussion paper. Good progress has been made on implementation and 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.’
