On 1 September 2011, the Financial Reporting Council (FRC) published a paper 'Effective Company Stewardship: Next Steps', which sets out the FRC's next steps following the responses to its effective company stewardship consultation.
The paper concludes that the judgements made by board and auditors throughout preparing and auditing financial statements and the annual report more broadly need to be more transparent. As such, the FRC notes that it will take the following actions:
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Narrative reporting: The FRC will work with the Department of Business, Innovation and Skills on its proposals to improve narrative reporting, which are due to be published this autumn. The FRC has also formed a steering group to develop a financial reporting laboratory, to try out different approaches to reporting.
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Strategy, risk and going concern: The FRC intends to update the Turnbull guidance, as indicated in its 'Board and Risks' paper published on the same day. The FRC also is exploring whether there are lessons to learn from the financial crisis on going concern through the Sharman Inquiry.
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The role of the audit committee: The FRC proposed that the audit committee should report to the whole board and, after that board has been accepted by the board of directors, it should be published in the annual report. Also the FRC
- Audit and the role of auditors: The FRC proposes to review auditing standards governing reporting by auditors to audit committees (ISA (UK & Ireland) 260) and audit reports (ISA (UK & Ireland) 700). The FRC also proposes to consult on a proposals to amend the UK Corporate Governance Code to require companies to put their audits out to tender at least once every 10 years, or explaing why they have not done so. It also plans to consult on the proposals to require companies to put this information and explanation in the annual report.
The Quoted Companies Alliance Corporate Governance Committee and Financial Reporting Committee submitted a response to the original consultation and will be following any developments in this area.
