FRC ‘disappointed’ by UK corporate reporting errors

The Financial Reporting Council (FRC) has reiterated the need for high-quality disclosures from companies after it identified a number of discrepancies in cash flow statements.

The UK accounting watchdog said that of the 252 companies reviewed as part of its Annual Review of Corporate Reporting – 27 were required to restate aspects of their accounts.

“The FRC was disappointed to find errors in cash flow statements, an area where both companies and their auditors must improve,” The regulator said in a statement.

The FRC also said that it has identified scope for improvement in reporting on financial instruments and deferred tax assets, despite the “overall quality” of corporate reporting having been maintained.

Reporting in uncertain times

It’s particularly critical that organisations address this issue amid the tough economic and political climate, the FRC’s added.

“During periods of economic and geopolitical uncertainty it is vital that companies not only comply with relevant reporting requirements but deliver high-quality information for investors and other stakeholders,” Sarah Rapson, executive director of supervision at the FRC, said.

“While these are challenging economic times, companies need to be agile, continually assess evolving risks and ensure these are clearly explained in their annual reports.”

The watchdog outlined further guidance on this in its report released in conjunction with the annual review.

In it, the regulator stressed the need for greater transparency around the challenges companies face as a result of mounting global pressures such as the ongoing war in Ukraine.

“Companies should clearly explain the risks and challenges in the business environment they are facing and how the risks and uncertainties have been reflected in the strategy,” it said.

“Businesses need to be agile and continually reassess the evolving risks, which they will need to reflect in their strategy and reporting.”

Future disclosure expectations

The report went on to outline a number of “key disclosure expectations” for UK companies during the forthcoming financial year.

These included the a clear explanation of the nature of inflationary impact on revenue, the disclosure of significant management judgements, and the disclosure of the material risks arising from financial instruments.

“As an improvement regulator, the FRC will be closely monitoring companies’ cash flow statements and other areas of reporting where we expect to see further improvements,” the FRC’s Rapson added.

Finally, the report also included a reminder to companies of the top ten areas of challenge during corporate reporting reviews:

1. Cash flow statements
2. Financial instruments
3. Income taxes
4. Strategic report and other Companies Act matters
5. Revenue
6. Provisions and contingencies
7. Alternative performance measures
8. Judgements and estimates
9. Impairment of assets
10. Presentations of financial statements and related disclosures