U.K. Regulator Revamps Company Reporting Reviews

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By David R. Jones

U.K. companies whose audits have been reviewed by the U.K. Financial Reporting Council now will have their names released to the public, under revised council processes.

“The revised procedures will increase the transparency of the Committee’s processes by permitting publication of the names of those companies whose reports and accounts it has reviewed, once the cases are closed,” FRC said.

The new disclosure policy is part of a revamped set of operating procedures for reviewing corporate reporting that FRC’s conduct committee issued March 31.

FRC, which establishes and enforces accounting, auditing and actuarial standards for the U.K. and the Republic of Ireland, undertook a consultation on its corporate reporting that ended in October 2016.

The revised operating procedures came into force on April 1.

Overseeing Audit Quality

The council supervises audit quality review (AQR) teams that monitor audits conducted by statutory auditors and firms that audit listed companies and other public interest entities.

FRC also carries out AQRs of large companies on the London Stock Exchange’s AIM—formerly the Alternative Investment Market—and of Lloyd’s Syndicates.

Latest Inspection Results

“The frequency of AQR inspections varies with larger firms inspected annually while other firms are generally inspected once every three years,” a notice on the council’s web site said.

The council on March 31 issued the names of more than 80 companies subject to its latest AQRs through December 2015, including:

  •   JP Morgan Emerging Markets Investment Trust, Imperial Tobacco Group and GlaxoSmithKline, all audited by PricewaterhouseCoopers LLP;
  •  Credit Suisse International, audited by KPMG LLP; and
  •   London Stock Exchange Group plc, audited by Ernst & Young LLP.
FRC sends confidential reports on AQRs to audit firms involved in council assessments and to company audit committees.

Seeking Revisions to Financial Reports

The U.K. 2006 Companies Act authorizes FRC’s conduct committee to apply in court for a declaration “that the annual accounts of a company do not comply, or a strategic report or a directors’ report does not comply, with the requirements of the 2006 Act,” according to the committee’s operating procedures.

The council can launch a regulatory intervention during its corporate reporting reviews asking a company to revise what FRC considers defective information in its financial reporting.

Monitoring Compliance

Once a company agrees to modify its financial reporting, FRC monitors these corrections to ensure they’re accurate, fair and balanced.

“If the company fails to carry out the revision in the manner agreed as acceptable, the review will be reopened at the stage at which it was previously closed,” according to the operating procedures.

First Chance to Respond

Under council rules, companies are given the first chance to respond to FRC regulatory interventions seeking corrections to defective information during corporate reporting.

Some respondents to the consultation, however, questioned whether companies, rather than the council, should be given the initial opportunity to publicly respond to regulatory interventions.

Assessing First Responses

FRC decided to permit companies to respond first to interventions before the council publishes its list of companies that have been subject to AQRs.

“If, after a period, there is evidence to suggest that, in general, disclosures provided are inadequate, [the] decision to give companies the first opportunity to comment will be reconsidered,” the council said.

To contact the reporter on this story: David R. Jones in London at correspondents@bna.com

To contact the editor responsible for this story: S. Ali Sartipzadeh at asartipzadeh@bna.com

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