The regulator says its series of thematic reviews are intended to supplement its routine monitoring programme by examining certain aspects of corporate reports and audits where there is particular shareholder interest, and scope for improvement and learning from good practice.

The FRC said: ‘We were disappointed by the results of our recent focused review of the impact of the new standards in a sample of December 2016 accounts, as reported in the ‘Annual Review of Corporate Reporting 2016/17’.

‘We expect companies to include detailed quantitative disclosure of their effect in their final accounts before implementation of the new requirements, e.g. in December 2017 year-end accounts. We expect this to be followed up with supporting explanation in the interim accounts, prepared in accordance with the new requirements.’

In corporate reporting, for 2018/19 the topics are targeted aspects of smaller listed and AIM quoted company reports and accounts; the effect of the new IFRSs on revenue and financial instruments on companies’ 2018 interim accounts; the expected effect of the new IFRS for lease accounting; and the effects of Brexit on companies’ disclosure of principal risks and uncertainties.

The FRC aims to write to 40 smaller listed and AIM quoted companies prior to their year-end, informing them that it will review two specific aspects of their next published reports and accounts. 

The specific aspects will be drawn from five areas that have recently featured in FRC thematic reviews or financial reporting lab reports, where the FRC has published examples of what better quality disclosures might look like and which we believe will help companies meet our expectations.

The FRC will also monitor disclosures in December 2017 reports and accounts relating to the future impact of the implementation of the new IFRS on lease accounting. It will also conduct a focused review of the detail reported in June 2018 interim reports of a number of companies in industries where the new IFRSs on revenue and financial instruments are expected to have the most material impact.

For audit, the FRC’s topics for focus are transparency reporting, where the regulator is planning a comparative analysis of transparency reports of firms with public interest entity (PIE) audits, and an assessment of the development and use of audit quality indicators (AQIs) by UK audit firms, which will draw heavily on international best practice.

The FRC will also complete its review of ‘The Auditors Work on the Front Half of the Annual Report’. This review, which was included in the 2017/18 thematic inspection programme, is being undertaken over an extended period, to enable the impact of recent relevant changes to auditing standards to be fully assessed.

In addition, the corporate reports and audits selected for review in 2018/19 will have regard to the FRC’s chosen priority sectors. These are financial services, with particular emphasis on banks, other lenders and insurers; oil and gas; general retailers; and business support services.

The FRC says particular attention will also be paid to first and last year audits, the audit of fair value investments, including goodwill impairment; the nature and extent of the use of auditor’s experts and specialists, and the approach to the audit of controls.

The work of the group auditor will continue to be a mandatory area of review, with a particular focus on the additional requirements in respect of the work of component auditors.

Report by Pat Sweet