Strategy & Operations » Governance » FRC raises concerns about how boards assess materiality

THE overall quality of corporate reporting among listed companies remains high, the FRC has said.

In its annual study of its corporate reporting review activities, the FRC noted that an increasing number of companies had made their reports and accounts more clear and concise by removing unnecessary disclosure.

The report also found that there has been a good response to the FRC’s call for enhanced disclosures about complex supplier arrangements.

However, the watchdog raised concerns around how some boards assess materiality and noted that materiality should not be used to justify opaque reporting about relevant items such as amendments to prior year accounts.

Commenting on the report, Geoffrey Green, chair of the FRC’s Financial Reporting Review Panel, said he was “generally pleased” with efforts to embed strategic report requirements into annual accounts but there is “still room for improvement in ensuring that the disclosures support a fair and balanced understanding of companies’ performance and position at the year-end”.

The FRC’s assessment is based on a review of 252 sets of reports and accounts in the year to 31 March 2015, of which 76 (30%) companies were approached for further information and explanation.

Eight companies were the subject of a press notice or ‘Committee Reference’ as a result of more significant concerns about their financial reports.

“We are reassured that the quality of reporting remains high among listed companies as this will continue to attract investment in UK companies. We were also pleased to see some good reporting by some smaller listed and AIM quoted companies although we continued to see evidence of more straightforward errors and lack of focus,” Green said.