Watchdog to bite on ‘sensitive’ data

Authorities fear companies will attempt to duck accounting rules that force them to disclose potentially sensitive information to investors and rivals.

The Financial Reporting Review Panel (FRRP) is taking an interest in disclosures to the markets amid concerns some companies could try to avoid new segmental accounting rules, which force them to disclose internal information.

The issue is high on the FRRP’s list of priorities and there is concern businesses will not follow the rule for fear of releasing commercially sensitive information.

The area is governed by international accounting rule IFRS 8. The rule, which came into effect this year, aims to explain company performance “through the eyes of management”.

Under IFRS8 financial data used to make decisions within a business needs to be made public and the onus is on the company to disclose information in whatever form it is viewed internally.

The issue is being closely watched by authorities as companies file their interim results and begin preparing annual financial statements.

Ian Wright, head of corporate reporting at the Financial Reporting Council, was keen to “remind” businesses they need to disclose the proper information.

“Historically the panel found there is a higher incidence of errors and omissions on first time applications of a new standard... We are keen to help people get it right the first time,” he said.

Asked if he would be clamping down on the issue he replied: “We are taking a keen interest.”

In September, 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.

Ken Wild, Deloitte’s senior technical partner, said the issue came down to what information was relied upon by senior managers to make decisions.

“There can be all sorts of information that hits the chief executive, not all of which he is using for his decision,” he said.

David Littleford, partner with KPMG, said the prize of disclosing the information was better information to shareholders.

IFRS8 had the potential to integrate narrative explanations with back of the book financials, according to Littleford. He added that there was no exemption for commercially sensitive data. “The standard contains no explicit exemption from disclosure on the ground of commercial sensitivity,” he said.

“In many companies, management is likely to receive a range of information they use to assess performance and allocate resources (and) our experience is that the application of the new requirements may mean management needs to exercise judgment to determine the appropriate disclosures.”

Further reading

Companies can't hide behind the numbers