Nicola Sharp of Rahman Ravelli details the Financial Reporting Council’s priorities for the next financial year
The Financial Reporting Council (FRC) has announced its areas of supervisory focus for the 2023-24 financial year.
The FRC’s Supervision Division will supplement its routine reviews of corporate reporting and audits with thematic reviews. These will identify scope for improvement and highlight examples of better practice. The FRC intends to carry out this work over the year, with the findings being released in a number of forms.
The FRC’s Audit Quality Review team will pay particular attention in its audit quality inspections to areas including going concern, fraud risks, climate-related risks, and risk identification and assessment. It will also prioritise sectors that are under particular pressure when selecting corporate reports and audits for review.
Thematic reviews
The thematic reviews to be carried out by the Corporate Reporting Review team will relate to:
- Insurance contracts (IFRS 17): The FRC will review a selection of insurers’ 2023 interim accounts to identify compliance with IFRS 17 - the International Financial Reporting Standard that became effective from 1 January 2021 - and examples of good disclosures.
- Large private companies: The proposed change to the definition of a Public Interest Entity will lead to increased regulatory focus on the biggest private companies. With the government’s threshold set to be entities that exceed £750 million annual revenue and 750 employees (what has been called the 750:750 test), the FRC will review a range of private companies’ annual reports to identify any areas of poor compliance with reporting requirements.
- Task Force on Climate-related financial Disclosures (TCFD) metrics and targets: The TCFD updated its recommendations relating to climate-related metrics and targets - including companies’ net zero plans - in 2021. The FRC’s thematic review of TCFD disclosures in 2022, which it conducted with the Financial Conduct Authority, identified room for improvement in many companies’ metrics and targets disclosures. This has prompted the FRC’s targeted follow-up in 2023, with a focus on the metrics and targets disclosures of companies from four relevant sectors.
- Fair value measurement (IFRS 13): The FRC’s review will focus on companies in the non-financial sector and provide an overview of the disclosure requirements of the standard, highlighting examples of better disclosure and common pitfalls.
Priority sectors and focus areas
In selecting both corporate reports and audits for review, the FRC will give priority to the following sectors:
Travel, hospitality and leisure
Retail and personal goods
Construction and materials
Industrial transportation
The FRC considers these sectors to be higher risk for corporate reporting and audit, due to economic or other pressures.
In a statement, the FRC said: “Given the difficult economic conditions that are currently being experienced, we recognise that many companies, in many different sectors, are currently under particular commercial and financial pressure.
“We will therefore be especially careful over the coming year in monitoring where these pressures are being felt most acutely, and tailor our selection of company reports for review and audits for inspection accordingly.”
