According to the Financial Times recently, the Financial Reporting Council – the disciplinary body governing accountants in the UK – is seeking a “step-change in the quality of reporting by smaller companies”. Could this affect you?
Nothing is actually changing just now. However, the Financial Reporting Council (FRC) has stated that in reviewing some companies they are going to be writing to some accountants regarding accounting disclosure “where there is a particular shareholder interest and scope for improvement and learning from good practice”.
So really, it sounds akin to a slap on the wrist and a warning to pull some socks up.
However, this is directed particularly at small businesses. In our experience, small business owners tend to use small-sized accountants so this may affect you. Fundamentally, it’s good news because it’s all about getting your house in better shape.
The FRC has said that it will be writing to around 40 smaller companies explaining that it will be looking at five ‘areas of concern’:
- Strategic Report and Alternative Performance Measures (APMs)
- Accounting policies, including critical judgments and estimates
- Cash Flow Statements
- Tax Disclosures
- Pension Disclosures
This all centres on the information being made available to stakeholders. The FRC has said this is because “Stakeholders tell us about the importance of quality information about cash flows in smaller companies.
We expect companies to pay particular attention to the classification of unusual or one-off items in the cash flow statement.” It’s about making sure smaller companies are meeting the expectations of integrity.
Who are the FRC?
We want to listen to the Financial Reporting Council (FRC) because they are the regulators of the UK’s auditors, accountants and actuaries. They aren’t just the rule-keepers, they are often the rule-makers. Their aim is to increase transparency and integrity in businesses.
It’s partly funded by the government and indeed the board is appointed by the Secretary of State for Business, Innovation and Skills. What it says – likely – goes. Therefore, if they have identified this area as an area for concern and attention then we need to stop and take a look.
They set the UK Corporate Governance and Stewardship Codes and UK standards in the accounting field, and make sure everyone is towing the line.
Keeping Your Books in Order
This is why it is important you do two things: choose your accountant wisely and keep your books in order.
A good accountant can help ensure your accounts are in great shape but this will be more efficient (and cost you less) if you’ve kept your books neat and tidy.