The Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance, has published a discussion paper arising from its project on reducing complexity in corporate reporting.
The paper, ‘Louder than Words: Principles and actions for making corporate reports less complex and more relevant’, recommends a commonsense approach to reducing complexity based on eight guiding principles – four for better communication in reports and four for improving the quality and effectiveness of regulations.
The paper also makes five calls for action where the FRC believes further investigation may lead to opportunities for reducing complexity. These are:
- Cash flow and net debt reporting: could this be better aligned with user needs such as by including a net debt reconciliation?
- Wholly-owned subsidiaries reporting requirements: could we find ways to reduce the reporting burden such as by reducing the filing or disclosure requirements?
- Cut clutter: could preparers reduce immaterial information (with the support of regulators) that may be undermining the quality of reports?
- Disclosures: could we overhaul the process for creating disclosures and provide guidance about when they can be deleted as not relevant?
- IFRS: could we improve usability through logical organisation and clearer articulation of the desired outcomes for each standard?
Paul Boyle, chief executive of the FRC, said: “Complexity in corporate reporting is a multi-faceted problem that will require changes in behaviour from all members of the corporate reporting community, including standard-setters, company directors, auditors and regulators. We hope that this paper will stimulate change.”
The FRC welcomes comments on its paper from a wide range of constituents by 30 October 2009.
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