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.

UK: Rio Tinto's business review - FRRP secures greater environmental disclosure

The Financial Reporting Review Panel has secured greater disclosure by Rio Tinto plc in respect of the business review it is required to publish under the Companies Act (2006); the required contents of the business review are set out in Section 417. This followed a complaint received by the FRRP last summer. Rio Tinto's most recent business review, published earlier this week, now contains more information regarding, for example, the potential health risks posed by exposure to workers and communities surrounding uranium mines and an example of the potential for the group’s projects to impact on biodiversity. For further information see here.

UK: company reporting of risk and uncertainties - FRRP expresses concern

In a press release published earlier today, the Financial Reporting Review Panel (FRRP) has expressed concern with the way in which companies are reporting the principal risks and uncertainties facing their business within the business review (as required by Section 417 of the Companies Act (2006)): see here. In its press release the FRRP sets out some questions for boards to consider in respect of their disclosure of the principal risks and uncertainties facing the business.

UK: FRRP annual report published

The Financial Reporting Review Panel has published its annual report (previously known as its activity report): see here (pdf). For the period in question - the year to March 2010 - the Panel reviewed 308 sets of accounts; 146 companies were approached for further information or explanation and 3 companies agreed to restate amounts reported in prior periods.

The Panel found improvements in the general quality of IFRS reporting although with regard to capital management and share‐based payment disclosures, reporting was sometimes poor in terms of content, extent and usefulness. The Panel also had concerns with the quality of reports and accounts of some smaller listed and AIM quoted companies. Interestingly, the report contains a couple of pages dedicated to explaining what makes a "good set of accounts" (see pages 2 and 3).

The Panel's remit was extended last year to include monitoring company's compliance with the FSA Disclosure Rules and Transparency Rules (DTR) 7.1.5 and 7.2 relating, respectively, to audit committees and corporate governance statements. In this regard the Panel examined a sample of 30 accounts and found clear room for improvement; to quote from pages 7 and 8:

.. all provided a corporate governance statement and gave information on the composition and operation of their board and of their nomination, remuneration and audit committees as required by the rules. Companies that did not apply all the provisions of the Combined Code generally provided an explanation for the departures, although these could have been clearer at times. The areas of the code most often not complied with related to board balance and independence ...

Most companies provided some explanation of the key features of the internal control and risk management systems in relation to their financial reporting process although the level of detail provided was variable. Some companies provided boiler‐plate descriptions of their budgeting process while others had not adjusted their descriptions of the key features of their internal control system to focus specifically on the financial reporting process, as now required by 7.2.5. Few companies referred to the preparation of the consolidated accounts despite DTR 7.2.10 requiring a description to be given of the main features of the group’s internal control and risk management systems in relation to the process for preparing consolidated accounts".

UK: IFRS8 and segment reporting by companies - FRRP expresses concern

The Financial Reporting Review Panel, part of the Financial Reporting Council, yesterday expressed concerns with the way in which some companies are reporting the performance of key parts of their business in accordance with IFRS 8 - Operating Segments: see here for further information.

UK: FRRP annual review and recommendations published

The Financial Reporting Review Panel - part of the Financial Reporting Council - has published, earlier than expected, its 2009 annual review and recommendations. The report is based on the Panel's review of 326 sets of accounts with year ends mainly falling between December 2007 and June 2008. The Panel concludes that the current standard of corporate reporting in the UK remains good but highlights concerns regarding the adequacy of disclosure by some companies in respect of:

• Principal risk and uncertainties in the business review (see p. 6)
• Liquidity (see p. 22)
• Management judgements and key estimation uncertainties (see p.15)
• Capital (see p. 16)