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FRC discussion paper ‘Effective Company Stewardship: Enhancing Corporate Reporting and Audit’

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FRC discussion paper ‘Effective Company Stewardship: Enhancing Corporate Reporting and Audit’

Written by Calum Haswell

Tuesday, 18 January 2011

The Financial Reporting Council (FRC) has published a new discussion paper entitled Effective Company Stewardship: Enhancing Corporate Reporting and Audit’. This paper (pdf) is available on the FRC website and sets out FRC recommendations on the matter.

The paper sets out seven key recoomendations:

1. Directors should take full responsibility for ensuring that an Annual Report, viewed as a whole, provides a fair and balanced report on their stewardship of the business

2. Directors should describe in more detail the steps that they take to ensure:

the reliability of the information on which the management of a company, and therefore directors’ stewardship of the company, is based; and
transparency about the activities of the business and any associated risks.

3. The growing strength of Audit Committees in holding management and auditors to account should be reinforced by greater transparency through:

fuller reports by Audit Committees explaining, in particular, how they discharged their responsibilities for the integrity of the Annual Report and other aspects of their remit (such as their oversight of the external audit process and appointment of external auditors);
and an expanded audit report that:

includes a separate new section on the completeness and reasonableness of the Audit Committee report;
and identifies any matters in the Annual Report that the auditors believe are incorrect or inconsistent with the information contained in the financial statements or obtained in the course of their audit.

4. Companies should take advantage of technological developments to increase the accessibility of the Annual Report and its components.

5. There should be greater investor involvement in the process by which auditors are appointed.

6. The FRC’s responsibilities should be developed to enable it to support and oversee the effective implementation of its proposals.

7. The FRC should establish a market participants group to advise it on market developments and international initiatives in the area of corporate reporting and the role of assurance and on promoting best practice.