Audit committee overhaul and specificity dominate reform plans
By ECM Plus staff
ECM Plus +++ The Financial Reporting Council has just launched a brace of new documents, enttled ‘Boards and Risk – A Summary of Discussions with Companies, Investors and Advisers’, and, ‘Boards and Risk – A Summary of Discussions with Companies, Investors and Advisers’ discussing effective corporate stewardship, a move to address more corporate transparency.
According to the FRC, corporations should improve the way they report to investors on the key strategic risks facing their businesses.
The FRC proposes ‘to ensure that company narrative reports focus primarily on strategic and major operational risks’, rather than indiscriminate lists of risks that all companies face.
The Council added that the Turnbull Guidance will be updated, and the FRC will consider whether changes may also be needed to the UK Corporate Governance Code to reflect lessons from its work on risk and ensure the conclusions of the on-going Sharman Enquiry on going concern and liquidity risks are taken fully into account.
The FRC’s said its proposals on risk are part of a wide-ranging set of measures aimed at improving the quality of company reporting, and increasing the information provided by audit committees and auditors about the work that they have done and the judgements or decisions they have made.
These include a proposal that the audit committee’s remit should be extended to include consideration of the whole annual report and to ensure the report, viewed as a whole, is fair and balanced; amending auditing standards to ensure that auditors always report the outcome of their review of the whole annual report, rather than, as at present, only when they encounter information that is inconsistent with the information contained in the financial statements.
FRC added that it will also include proposals on establishing a new Financial Reporting ‘Laboratory’ to remove roadblocks to effective reporting and promote innovation. It will also consider a proposal to require companies to put their audits out to tender at least once in every ten years, or explain why they have not done so.
FRC’s CEO Stephen Haddrill said: “These reports represent another step forward in applying the lessons we have learnt from the financial crisis, to improve the overall transparency of the reporting process and the accountability of all those involved in the financial reporting chain.
Added Haddrill: “Our conversations with companies have revealed a step change in the efforts made by directors to manage risks. However, company reports often do not get to the heart of the matter. We hope that by putting an emphasis on the reporting of risks that could undermine the company’s strategy or long-term viability, companies will give investors the information they need to help them decide how to allocate capital”.