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FRC seeks transparent disclosure of tax risks in corporate reports

THE FINANCIAL Reporting Council (FRC) is set to conduct a thematic review of companies’ tax reporting to encourage more transparent recording of the relationship between tax charges and accounting profit.

The accounting and auditing watchdog said the required disclosures are key to helping users understand the significant factors that could affect that relationship in the future and will help drive continuous improvements in the quality of corporate reporting.

It says it will write to a number of FTSE 350 companies before their year-end, to announce that the corporate reporting review team will evaluate the tax disclosures in their next published reports.

The FRC plans to take a particular interest in the transparency of tax reconciliation disclosures and how well the sustainability of the effective tax rate is conveyed. It will also probe the uncertainties relating to tax liabilities and assets where the value at risk in the short term is not identified.

Geoffrey Green, chairman of the FRC’s financial reporting review panel and member of the conduct committee, said: “There is considerable public interest currently in international tax arrangements, prompted by developments both in the UK and on a global basis. Investors have a heightened interest in wanting to understand the policy decisions made by companies and the impact these have on their current and future accounts.

“Through the FRC’s ‘clear & concise’ initiative, the FRC aims to stimulate boards to review their tax disclosures to ensure their annual reports provide high-quality information for investors. Companies which are clear about their tax risks will be looked to as examples of good practice while, in other cases, there will be an identification of where improvements may be made. Consistent with its overall objective, the FRC will consider how to publicly share the best of what is seen to help others raise the quality bar on this aspect of their reporting.”

Companies are now required to disclose the principal risks and uncertainties they face and are expected to explain the actions they propose to mitigate the impact of those risks.

The FRC’s targeted review will consider the totality of the companies’ reporting, including relevant disclosures in their strategic and other narrative reports as well as the detailed accounting disclosures.

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