The economic crisis has heightened the risks to confidence in corporate reporting and governance to such an extent that the Financial Reporting Council has changed its plans to tackle the threat.
The Financial Reporting Council believes there is increased risk to the independence of the International Accounting Standards Board and that the economic crisis has heightened the risk of directors writing 'errors', or 'making omissions' in their financial reports.
In its new plan for 2009/10 the regulator also believes the concentration of the audit market remains a risk which could result in ‘significant uncertainty and cost’ should one of the major audit firms leaves the market through calamity or through choice.
The FRC says: ‘We believe that those with responsibility for implementing high standards of corporate reporting and governance, and the FRC and other regulatory authorities should remain alert to the heightened risks and respond accordingly.’
Sir Christopher Hogg, chairman of the FRC, said: ‘The profound effects of the credit crunch are now challenging everyone to re-examine their assumptions about what works and what doesn’t.
‘The FRC in the Plan period will be giving priority to reviewing in the light of the present crisis the impact of its standards in corporate reporting and governance.’
On international standards the FRC believes there are two key worries. The independence of the standard setter and the possibility that the convergence project with the US is drawing the International Accounting Standards Board into setting rules instead by the a more rules-based approach to setting standards, rather than being principles-based.
However, the FRC has no defined course of action to tackle these concerns in its plan. It said it will continue to ‘influence the development of IFRS’.
On corporate reporting the FRC has re-emphasised its focus review the reports in the banking, retail, leisure, travel, commercial property and house building.
As for auditors the FRC said that it will assess whether its own project to tackle audit concentration has been effective and will ‘consider the need for additional action’, a statement that will concern those who believed that the audit market should be left to resolve itself.
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