Financial Reporting has received its fair share of column inches in recent weeks
Headlines have, for obvious reasons, been grabbed by issues with Tesco's financial reporting. Indeed, the fallout from the scandal is still being felt -
– as Tesco issued a profit warning on 9 December 2014, following the discovery that it had overstated its first half profits by £263 million. This scandal got even more serious when the Financial Reporting Council (FRC) announced on 22 December 2014 that it would be investigating the auditing of Tesco's financial statements, which is conducted by PwC, from the past three financial years and the first half of this year to 23 August 2014.
Whilst not so dramatic but still significant, the FRC recently announced the results of its examination of the accounts of 271 companies. This exercise was geared at monitoring standards in relation to clear reporting and follows the FRC's recent updates to the Corporate Governance Code (as referred to in our blog).
Although the FRC found that corporate reporting by large public companies was generally "of a high standard," reports for some smaller and AIM listed companies came in for criticism. Out of the 271 companies reviewed, 100 (37%) were approached for further information and clarification. Some household names fell short of FRC standards in relation to clear reporting, including WHSmith, RBS and Rolls Royce.
The FRC also made recommendations for companies in relation to reports in the next reporting season. These recommendations emphasised the need to assess the accounting effects of changes to the structure of pension arrangements, analyse the effect of new accounting standards and to identify all the relevant intangible assets arising in recently acquired businesses.
Given that many of the companies that received criticism from the FRC were smaller companies and those with fewer resources, the FRC also expressed a desire to improve the quality of reporting from these smaller companies, and is currently gathering evidence on the causes of these problems. Regardless of the FRC's findings, smaller companies are still likely to find the expense of seeking advice to comply with these increasingly complex reporting requirements a financial burden.
In any event, given that the FRC seems to be sharpening its teeth regarding compliance with financial reporting requirements, it is likely that all companies will be seeking professional support to ensure they do not face the scrutiny of the FRC in future assessments of reporting standards and the associated potential negative publicity.