Companies fail to release key accounting data, warns watchdog

Accounting rules are being either misread or manipulated to conceal commercially sensitive data, according to the financial reporting watchdog.

The Financial Reporting Review Panel has today voiced its “concern” about the application of an accounting rule which compels managers to reveal what information they used when making key internal decisions.

In this way shareholders are able to review a company’s operations from the same perspective as management.

The accounting rule, known as IFRS 8, requires companies to provide an analysis of profit, assets and liabilities so that investors can see the performance of the principal operations or "segments".

However, a sample of 2009 and 2008 accounts has revealed a mismatch between the divisions of a company and the segments being reported under the accounting rule.

“Management should ask themselves whether the reported segments appear consistent with their internal reporting and, if not, why not,” the FRRP said in a statement.

Companies have been slow in implementing the new rule, fearing they are releasing commercially sensitive information.

Bill Knight, chairman of the panel, said the accounting rule requires companies to report publicly in the same way as they measure performance and allocate resources internally.

“Implementation is a challenge, but also an opportunity to communicate better by linking the business review with the content of the IFRS accounts.”

In September 2009, the panel found that Supercart plc, listed on the alternative investment market, failed to disclose all information required under the rule. It did not accept the company’s excuse that the information was of a sensitive nature.

“The panel concluded the company’s failure to disclose certain information required by IFRS8 on the grounds of commercial sensitivity was not in accordance with that standard,” said an FRRP statement.

Supercart chose not to comment at the time.

Further reading: Watchdog to bite on ‘sensitive’ data