Watchdogs have revealed concerns about the widening gap between the quality of financial reporting in the FTSE 350 companies and other listed companies.

The worries come in the Financial Reporting Council’s (FRC) annual review of corporate reporting, which sees the regulator point to issues outside the FTSE 350.

Sarah Rapson, executive director of supervision at the FRC, says reporting in smaller companies is “concerning” because they are “important” for economic growth and trust in business.

“To address the concerns highlighted in this year’s annual review,” says Rapson, “companies should clearly familiarise themselves with the FRC’s top ten reporting issues and focus on providing material disclosures that are clear, concise, and company specific.

“Companies should also note that good quality reporting does not necessarily require a greater volume of disclosure.”

While the quality of FTSE 350 disclosures has remained steady, other companies saw a rise in queries about impairment of assets and cash flow statements. Some of these issues were so bad that they potentially affected the ability of companies to distribute profits.

Geopolitical risks

The FRC reminds companies not to neglect the impact of geopolitical conflict in their reporting.

“Although some of the inflation-driven economic uncertainties faced by companies in recent years have started to diminish,” the review says, “geopolitical tensions continue, and low growth remains a concern in many economies.

“Disclosure of such uncertainties and risks remains relevant to a number of our top ten areas of challenge, including impairment and financial instruments.

“Companies should not lose sight of the need to consider carefully, and disclose clearly, their effect on the company’s results and financial position, as well as the assumptions underpinning the values of assets and liabilities, and forward-looking forecasts.”

Impairment of assets disclosures

For accounting aficionados, impairment of assets, like last year, remains the top concern of corporate reporting guardians. Next come cash flow statements and financial instruments.

Impairment of assets disclosures caused 12% of all regulatory reporting cases. Among the clarifications requested was how goodwill and cash flow had been allocated to cash generating units.

Revenue statements have caused growing concern—up from sixth place last year to fourth. It also accounts for 9% of regulatory cases opened by officials.

The issue seeing the fastest growing level of concern is “presentation” of financials. Last year, it was the ninth most worrying issue but is now the fifth.

Climate reporting moves into the top ten causes of concern for the first time this year, with an appearance in tenth place.

Questions prompted by climate reporting included those over inconsistencies between information reporting and the TCFD (Taskforce for Climate-related Financial Disclosures) and a lack of clarity over metrics and target, and climate risks and opportunities.

The FRC says there are “comparatively few” sustainability reporting issues but commented “some companies continue to find this challenging”. The review reminds companies to be concise: “material information should not be obscured,” it says.