The Financial Reporting Review Panel (‘the Panel’) today published its activity report and comments on the challenges to corporate reporting arising from current conditions in financial markets.

The report is based on findings from the Panel’s review of accounts in the year to 31 March 2008 in which:

• 300 sets of accounts were reviewed
• 138 companies were approached by the Panel for further information or explanation
• 88 companies undertook to reflect the Panel’s comments in their future reporting.

These accounts were mainly for financial periods ending from December 2006 to June 2007, shortly before the onset of the current dislocation in the markets.

Directors are advised to pay particular attention to the following areas of reporting where market conditions may require changes in accounting or in the nature and extent of disclosures:

• sources of uncertainty affecting management's estimates which carry a risk of causing a material adjustment to the carrying value of assets and liabilities
• revenue recognition criteria where unreliability of measurement may lead to deferral of income
• relationship with special purpose entities which may have been amended during the year resulting in changes in the shape of consolidation.

The report also trails two reviews by the Financial Reporting Council on impairment and liquidity, which will be published shortly.

The report includes early findings from the Panel’s reviews of directors’ reports, including business reviews, following the extension to the Panel’s remit during the year. Issues raised most frequently with companies related to the disclosure of the principal risks and uncertainties which they face. Given the speed and pervasiveness of the financial crisis and other market changes, including rising prices and pressures on supply, directors may need to contemplate risks and uncertainties previously thought to be too remote to have warranted serious consideration.

Commenting on the findings and recommendations, Bill Knight, Chairman of the Panel said:

“UK company directors generally work hard to comply with accounting standards. This report aims to help them in the next reporting season by highlighting those areas where directors’ judgment is vital and where the assumptions on which it must be based are sensitive to change. The Panel is less likely to question directors whose business model is clear, who avoid boiler-plate descriptions and who are open and direct about the specific risks and uncertainties that may challenge their business in the foreseeable future”.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on Corporate Governance.
2. The Role of the Panel is to examine the annual accounts of public and large private companies to see whether they comply with the requirements of the Companies Act 2006 (“the Act”) including applicable accounting standards. Following implementation of the Accounting Regulation (EC) No 1606/2002, this may mean compliance with UK or International Financial Reporting Standards. 
3.  Where breaches of the Act are discovered the Panel seeks to take corrective action that is proportionate to the nature and effect of the defects, taking account of market and user needs. Where a company’s accounts are defective in a material respect the Panel will, wherever possible, try to secure their revision by voluntary means, but if this approach fails the Panel is empowered to make an application to the court under section 456 of the Act for an order for revision. To date no court applications have been made.
4. The Chairman of the Panel is Bill Knight and the Deputy Chairmen, Ian Wright and David Lindsell. There are currently 24 other Panel members drawn from a broad spectrum of commerce and the professions. Individual cases are normally dealt with by specially constituted Groups of 5 or more members.
5. All Press enquiries should be directed to Carol Page tel: 020 7492 2460 or at c.page@frc-frrp.org.uk or Ian Wright tel: 020 7492 2330 or at i.wright@frc.org.uk.