The Financial Reporting Council (FRC) has set out the areas where it will undertake thematic reviews of certain aspects of companies’ corporate reports and audits over the course of 2017, focusing on those where it believes there is scope for improvement and particular shareholder interest, which include the risks related to Brexit and the use of alternative performance measures
For corporate reporting the focus will be on significant accounting judgments and sources of estimation uncertainty; pension disclosures; and Alternative Performance Measures (APMs).
The FRC says it finds too many examples of generic disclosures that do not identify the specific judgments a board has made or that fail to explain the extent to which the changes in value of assets and liabilities could have a material effect on the following year’s accounts.
The FRC says continued low interest rates and the economics of defined benefit pension arrangements have increased the need for companies to improve the transparency of their pension arrangements, which has triggered the thematic review of companies’ pension disclosures to encourage more transparent reporting of the relationship between a company and its pension plans.
On the topic of APMs, the regulator says it will be looking for good explanations supporting the use of particular APMs; where an APM is used internally, why it is so used, by whom and for what purpose; and for definitions of APMs to be presented for each APM together with reconciliations to IFRS equivalents, among other factors.
The FRC will write to a number of companies prior to their year-end, informing them that it will review disclosures in their next published reports, specifying the topic under review.
When reviewing any report published in 2017, the FRC will also monitor and report on companies’ disclosures relating to the impact of new IFRSs; including the timeliness and usefulness of the information provided. It will also look at how companies report on the principal risks and uncertainties relating to Brexit and the low interest rate environment and the extent to which they are company specific.
The thematic review of audit will consider the six largest audit firms’ policies and procedures and will review a number of audits in these specific areas to make comparison with a view to identifying both good practice and scope for improvement. The topics of particular interest are auditors’ responsibilities relating to other information; audit firm governance and culture; and materiality, with an update on 2013 thematic review.
In addition to these thematic reviews, the FRC will, in its routine corporate reporting and audit monitoring activities, give some priority to reports and audits in the property, travel and leisure and support services sectors. Audit monitoring will additionally also focus on the financial service sector.
Audit monitoring will pay particular attention in the audits reviewed to changes in auditor appointment, audit of pension balances and disclosures and the audit of impact of currency fluctuations.
Thematic Review - Alternative performance measures (APMs) is here.
Thematic Review - Significant accounting judgments and sources of estimation uncertainty is here.
