FRC takes aim at capital disclosures

Four out of five companies make sub-standard disclosures on their capital models, according to the UK’s financial reporting regulators which says investors are not receiving adequate information on capital management.

The Accounting Standards Board (ASB), which sits within the Financial Reporting Council, has found most companies fail to adequately convey what role capital plays in their business model.

Capital management has been a factor in the story of a number of companies including care home group Southern Cross, which sold off its care home properties and leased them back after being taken over by private equity.

The company has now fallen victim to buoyant rental agreements negotiated during the heady days prior to the financial crisis.

The ASB study found only eight of the 40 company reports it examined were informative, with 11 classified as “boilerplate”.

“Over a quarter of the business reviews contained no more than boilerplate statements, while others provided scant information such as a comment on short term dividend plans,” the ASB said in its report.

Roger Marshall, interim-chairman of the Accounting Standards Board said capital management is a key discipline that should be on the regular agenda
of all boards.

“Adequate capital supports growth and provides a buffer against significant economic shocks so reducing the risk of a liquidity crisis,” he said.

“This is particularly important at present given the pressures on particular sectors facing the impact of reduced government spending.”


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