Growing clash between front-end spin and back-end data in annual reports, says FRRP

Thursday, August 26, 2010 | Posted by: Fiona Cullinan
Categories: FRC, Governance, Risk | Tags: governance, risk, FRC, Simon Lowe, financial reporting, FRRP, audit, accounts, internal, external

Inconsistencies in annual reports between the corporate narrative and the external audit figures are becoming more of a focus for the Financial Reporting Review Panel (FRRP). The problem was highlighted in its annual report, out last week: of the 308 companies reviewed, 146 had been approached by the FRRP for further information or explanation.

Established in 1990 as part the Financial Reporting Council, the FRRP seeks to ensure that the provision of financial information by public and large private companies complies with relevant accounting requirements.

But narrative reporting, specifically the business review, is “absorbing an increasing proportion of the Panel’s energies”:

“Letters to companies during the year often included a request for further information to help explain apparent inconsistencies between the narrative information in the front of the report and accounts and the audited accounts in the back end. This is likely to remain a key area of interest for the Panel.”

That narrative reporting is “absorbing an increasing proportion of the Panel’s energies” should come as no surprise given that in our Corporate Governance Review 2009 we noted that more than half of the pages of an average annual review are now outside the scope of external audit.

With the prospect of the son of the Operating and Financial Review (OFR) being introduced, and an increased focus on enhanced disclosures around strategy, risk and KPIs, this attention is to be welcomed.

Simon Lowe, Head of Business Risk Services and author of the FTSE 350 Corporate Governance Review, added:

“With only a few companies obtaining any independent assurance as to the accuracy of the information contained in the front end of the annual reports, there is a growing need to head off accusations of annual reports becoming no more than a vehicle for corporate spin.”

You can access the full FRRP report on the FRC site.

For further help, contact Simon Lowe on simon.j.lowe@gtuk.com or read more on our Corporate Governance page.

Image of a sample annual report: © Ramp Creative

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