After the FRC’s annual review of corporate governance reporting found scope for improvement in key areas of financial reporting, its corporate reporting review team will supplement its routine reviews in 2023/24 with four thematic reviews of corporate reporting and audits in the following sectors, which are under particular pressure:
Following the introduction of the new IFRS 17 standard on insurance contracts, the FRC will review insurers’ 2023 interim accounts with greater scrutiny.
Large private companies
The FRC will review a selection of private companies’ annual reports to identify areas of poor compliance with reporting requirements in light of the enhanced regulatory focus on the largest private companies.
Following the introduction of the Public Interest Entity Auditor Register Regulations on 5 December 2022, there is also a proposed change to expand the definition of a public interest entity to include companies and LLPs with over 750 employees and an annual turnover of over £750m.
Task Force on Climate-related Financial Disclosures
As the FRC’s thematic review of TCFD disclosures in 2022 highlighted room for improvement for companies’ disclosures and metrics, the FRC will carry out a targeted follow-up in 2023 and assess if companies have addressed their net zero commitments in their financial statements.
Fair value measurement (IFRS 13)
The FRC will highlight examples of better disclosure and common pitfalls of companies in the non-financial sector. The FRC’s audit quality review team will carry out its audit quality inspections in line with ISQM 1, the new quality standard for firms. For its 2023/24 inspection cycle, the FRC has chosen to cover sampling, hot review, root cause analysis and network resources and service providers. It will pay particular attention to going concern, fraud risks, the application of ISA (UK) 315, the revised auditing standard for risk identification and assessment and climate-related risks, including the link between audited financial statements and the annual report’s climate-related disclosures.
When selecting corporate reports and audits to review, the FRC will generally tailor its selection of company reports for review and audits for inspection where commercial and financial pressures have been felt most acutely in the difficult economic conditions.
After the FRC’s 2022 annual review focused on FTSE 350 companies in the travel, hospitality, retail, property and financial services sectors, the FRC will adjust its scope for 2023/24 and give priority to the following sectors, considered to be a higher risk from economic pressures:
• Travel, hospitality and leisure;
• Retail and personal goods;
• Construction and materials; and
• Industrial transportation.
Click here for a copy of the announcement of the FRC’s areas of supervisory focus for 2023/24.
This article was produced in association with White & Case UK’s Public Company Advisory team. Read their original alert here.