FRC provides insights into potential future areas of challenge
The FRC has published its Annual Review of Corporate Reporting for 2021/22. The report summarises the findings arising from the review of 252 reports and accounts by the FRC's Corporate Reporting and Review (CRR) team, identifying areas for improvement and its expectations for the coming reporting season.
Whilst the findings of the review are generally positive, as with the previous two years, the review includes a summary of the 'top ten areas of challenge' identified during the CRR team's reviews. They provide a useful insight into the FRC's current expectations and potential areas of focus in audit quality inspections over the coming year.
The FRC note that, despite the challenging environment, the quality of corporate reporting among the FTSE 350 has been maintained, with improvements in companies’ reporting of judgements and estimation uncertainty, impairment of non-financial assets, revenue and alternative performance measures (APMs).
In addition, the introduction of reporting based on the Taskforce for Climate-related Financial Disclosures (TCFD) recommendations for premium listed entities has significantly progressed climate-related reporting.
The Annual Review does however highlight a number of areas of reporting where scope for improvement remains and the FRC found it disappointing that the number of companies restating their accounts following reviews by the CRR team had doubled in 2021/22 (27 from 15 in 2020/21).
Cash flow statements, financial instruments and deferred tax were identified as the topics that arose most frequently in the CRR team's correspondence with companies in 2021/22. Errors in cash flow statements were highlighted as an area of "considerable concern" and have been identified as an area of focus for audit quality inspections in the 2022/23 review cycle to help drive the necessary improvements.
Given the current economic climate, further areas of focus include non-banking companies’ disclosures of expected credit loss provisions and the disclosure of evidence supporting deferred tax assets (previously highlighted as an area for improvement in the 2021 Annual Review).
A complete list of the top ten areas of challenge have been included below.
- Cash flow statements
- Financial instruments
- Income taxes
- Strategic report and other Companies Act matters
- Provisions and contingencies
- Alternative performance measures (APMs)
- Judgements and estimates
- Impairment of assets
- Presentation of financial statements and related disclosures
For full details, access the links below.