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Changes to the FRC’s Corporate Reporting Review procedures

17 October 2016

The FRC is consulting on changes to the way it reviews corporate reporting. The proposed changes will affect the way in which the FRC’s Corporate Reporting Review Team (the CRRT, sometimes known as the FRRP) works. Three key changes to its operating procedures are set out below:

Letters to companies

The CRRT reviews approximately 200 sets of accounts each year but, on average, only 30% of those reviews resulted in a letter being written to the company. The other 70% of companies were unaware that the CRRT had looked at their accounts. Under the revised procedures, all companies that are reviewed by the CRRT will receive a letter under one of the following categories:

  • A substantive enquiry letter – to which the CRRT expects a substantive response within 28 days from the date of the original enquiry.
  • A prospective change letter – that identifies matters that the CRRT expects to be addressed in the company’s next annual report. Companies need only acknowledge receipt of the letter but the CRRT will look at the next set of accounts to assess the company’s response to the prospective change.
  • An appendix only letter – that lists a number of potential disclosure or other deficiencies that the CRRT expects the company to consider and, if they are material/relevant, address in its next annual report.
  • A no substantive issues letter – that informs the company that its accounts have been reviewed but which raises no actual or potential issues.

This final letter is new and heavily caveated in order to ensure that a company does not take undue assurance from it. The FRC notes that it is advisable for a company to discuss the receipt of any of these letters with its auditors at an early stage.

Disclosing the identity of reviewed companies

In the past, the FRC has publically identified the names of only the companies that have been the subject of a company specific Press Notice or which have included Panel References (voluntary disclosure of the issue and its resolution) in their annual reports following the closure of an enquiry from the CRRT. Going forward, the FRC intends to publish the names of all of the companies it has reviewed and it encourages companies that have been subject to CRRT review to make reference to it in their annual reports. It is worth noting that the FRC’s April 2016 version of Guidance on Audit Committees (for companies that apply the UK Corporate Governance Code) recommends that audit committee reports include details of the nature and extent of interaction (if any) with the FRC’s CRRT.

Pre-notifying companies subject to CRRT review

The majority of companies reviewed will not receive advance notice from the CRRT. However, the CRRT is also now notifying some companies in advance that it intends to review their next annual report. This may be either a general review or a review of a specific area of disclosure as part of a thematic review. Clearly, it is advisable for a company to discuss the receipt of such a letter with its auditors at an early stage.

Read the consultation document - although the consultation runs until 4 January 2017, the CRRT has already started to pilot some of the revised procedures.

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