Following the UK Chancellor’s Budget speech in the House of Commons, the Treasury and the Department for Business, Innovation and Skills have published ‘The Plan for Growth’. The document includes a number of recommendations relevant to the work of the Financial Reporting Council (FRC), including proposals to:
- Reduce the number of UK small and medium-sized enterprises (SMEs) required to undertake audits and reduce financial reporting burdens for these firms.
- Bring forward legislation in 2012 to exempt many subsidiaries from producing audited accounts.
- Encourage the European Commission (EC) to exempt the smallest companies from reporting requirements.
- Simplify narrative reporting for quoted companies to make it clearer and more focused.
The government also makes clear the FRC’s role in reinforcing the principle that independent regulation and enforcement should focus on risk and outcomes rather than process.
The FRC expressed its concern about the impact of restrictive lending covenants to the House of Lords Economic Affairs Committee and welcomes the government’s call on the Office of Fair Trading (OFT) to investigate whether clauses in lending agreements made by the banks are unfairly restricting competition in the audit market.
FRC chief executive officer (CEO) Stephen Haddrill said: “The government rightly focuses on measures to promote sustainable economic growth. We welcome the focus on reducing unnecessary regulations relating to auditing and accounting. These proposals are consistent with the Accounting Standards Board’s current consultation on the future of UK GAAP which is intended to simplify the rules for SMEs.
“We also support the government’s commitment to improve the quality of narrative reporting in company accounts. It is particularly important that investors receive a clear and accurate picture of a company through its accounts and narrative reports.
“The FRC will shortly be producing recommendations aimed at helping the preparers of accounts to reduce clutter in annual reports, and through the work of the Financial Reporting Review Panel FRRP the FRC pursues the better reporting of principal risks. This action complements the fundamental proposals announced in the FRC’s consultation document, ‘Effective Company Stewardship’, which encourages Audit Committees to improve their reporting of the risks that keep them awake at night.
“The FRC looks forward to working with the Government and our other stakeholders to play our full part in promoting sustainable economic growth,” he concluded.
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