UK: the FRRP's annual report and improving the operation of 'comply or explain'

The Financial Reporting Review Panel published its 2011 annual report today: see here (pdf). Of particular interest is what the Panel says regarding corporate governance statements: explanations for departures from the Combined Code (now the UK Corporate Governance Code) could often be clearer and more informative. In this regard, the Panel's report states that the FRC will be facilitating a debate about the characteristics of an 'explanation' in order to decide what shareholders should expect from boards who choose to 'explain' rather than 'comply'. If a consensus can be found, consideration will be given to what role, if any, the Panel should have in encouraging companies to provide more informative explanations. One suggestion outlined in the report would be to permit shareholders to contact the Panel if a company failed to respond to a request for a clearer explanation. The Panel's role would be to raise the matter with the company. The report makes clear, however, that the Panel would not make a judgment about the appropriateness of the company's governance arrangements: its remit would be limited to the explanation of those arrangements provided by the company.

Elsewhere in the report, the Panel expresses concern with the quality of the reports and accounts of some smaller listed and AIM quoted companies.