FRC to focus on quality of small company reporting

THE FRC has launched a series of measures aimed at improving the quality of corporate reporting at smaller quoted companies after finding that many accounts fail to meet investor expectations.

Many smaller quoted companies lack sufficient skilled resources and are unable to keep pace with new reporting requirements, the reporting watchdog found in a review of reporting by companies listed on junior stock markets.

It said it will develop ways of providing more focussed training to finance staff; provide guidance to audit committees and boards on evaluating the adequacy of a company’s financial reporting function and process; promote options for reduced disclosures against IFRS against such companies; and provide annual guidance to boards of smaller quoted companies on the current issues, areas of focus for investors and common errors.

In addition, the FRC will be discussing with the London Stock Exchange and UK Listing Authority ways to ensure that companies have appropriate financial reporting resources.

The findings come as the FRC’s annual review of audit quality found that entities outside the FTSE 350 are most likely show a need for significant improvement in their audits.

Investors have told the FRC they rely particularly heavily on the quality of reporting in smaller listed companies given the absence of other analysis, but that smaller quoted companies believe investors pay little attention to their annual report and hence do not prioritise its preparation to a higher standard.

“We recognise that these businesses have limited resources and face challenges in reporting. Our evidence though is that the annual report is important to investors and the quality of reporting can affect investment, rating and lending decisions,” said Stephen Haddrill, CEO of the FRC.

Comments and feedback on the FRC’s discussion paper are invited by 31 July 2015.