The committee’s chair, Lord Hollick, wrote to the regulator last month asking for clarification on the issue, after the Local Authority Pension Fund Forum (LAPFF) uncovered correspondence between the FRC and the government’s former business body, the Department of Business, Innovation and Skills (BIS), which it claims shows the government was not in agreement with the regulator on this issue, even though the FRC claimed it was.

LAPFF also sought an opinion from QC George Bompas, who found that unless the accounts enable a determination of the distributable profits from the numbers as stated in the accounts, then the accounts will not give a true and fair view of the assets, liabilities financial position and profit or loss.

In his response, FRC chief executive Stephen Haddrill says he has considered Bompas’s opinion ‘very carefully’, while the FRC is ‘open to changes that would improve disclosure’, but goes on to state: ‘I have not found reason to change our view that the Companies Act does not require the publication of information on realised profits or distributable reserves in the annual report.’

Haddrill says the FRC agrees that the disclosure of more information on dividend policy and practice and the binding constraints on the policy, such as the levels of distributable reserves, regulatory reserves or cash and other liquid assets, is ‘desirable’.

‘However, such information is not required by the Companies Act. In consequence we are not in a position to require companies to report as Mr Bompas suggests they should,’ he said.

Haddrill goes on to say that the government backs the FRC’s view ‘as does the audit profession and other stakeholders including many investors.’  He therefore rules out seeking a further opinion on the matter, as suggested in Hollick’s letter.

However, he hints that some clarification might be useful, when he notes that the matter can only be resolved by either an investor securing an interpretation of the law by the courts, or by the government changing the act.

‘The FRC is not in a position to pursue either of these routes, although if the government were willing to legislate we would suggest some improvement to the current wording,’ Haddrill said.

Regarding the economic affairs committee’s second concern – the need to reinsert the concept of prudence into the conceptual framework used by the International Accounting Standards Board (IASB) in writing IFRS – Haddrill said the FRC had made ‘some progress’.

Haddrill said: ‘The exposure draft of the new framework does include prudence in the main body of the text, which is a significant step in the right direction.’

He also pointed to IASB’s acceptance of the FRC’s argument for “asymmetry”, so that in times of uncertainty a higher level of scepticism was adopted, but conceded this should be given a higher profile.

‘We will also seek to ensure that a proportionate view of prudence is actually applied in the development of standards,’ Haddrill said.

The LAPFF has yet to comment on the FRC response.

Lord Hollick’s letter is here.

Stephen Haddrill’s reply is here.