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January 6, 2011

FRC attempts to improve corporate reporting

The UK Financial Reporting Council (FRC) has unveiled proposals to enhance dialogue between company boards and shareholders and improve transparency in corporate reporting and audit.

The FRC’s report ‘Effective Company Stewardship: Enhancing Corporate Reporting and Audit’, contains seven key recommendations to improve transparency and narrative of annual reports. FRC chief executive Stephen Haddrill said corporate reports have become more cluttered, reducing their value to investors.

“Annual reports are more than marketing documents: they are a vital source of narrative and financial data which are used by shareholders to make investment decisions,” Haddrill said.

The FRC says annuals reports should show:

  • More widespread recognition of the importance of audit committees and greater emphasis on their contribution to the integrity of financial reporting,
  • Greater transparency in the way that audit committees discharge their responsibilities in relation to the integrity of the annual report, including oversight of the external auditors,
  • More information about the audit process, both for audit committees and for investors and a broadening of the scope of the auditor’s responsibilities,
  • Higher quality narrative reporting, particularly on business strategy and risk management, and
  • More accessible Annual Reports through the use of technology.

The FRC said it will consult on whether the finished guidelines should apply to all listed companies, to those in the FTSE 350 or to another group.

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