The FRC and stewardship

accawebmaster —  12 January 2011 — Leave a comment

By John Davies, head of technical, ACCA

The Financial Reporting Council (FRC) has issued new proposals on company stewardship. The report, Effective Company Stewardship: Enhancing Corporate Reporting and Audit, brings together some of the strands that the FRC and the government have been looking at over the past two years: active share ownership, narrative reporting, and independent audit. These are significant for directors, auditors, and members of audit committees.

Certainly, there is widespread and growing disenchantment with the ability of corporate reports to meet the information needs of shareholders. Too often, annual reports are too voluminous and detailed, or, at the other end of the scale, are marketing vehicles that contain vague or self-congratulatory content. If the FRC's ideas have the effect of concentrating boards' minds on what users really need to know, then that will be a positive development.

There is a similar groundswell of opinion that the audit needs to evolve in order to become more useful. Action on things like assurance on internal controls or the client's risk management systems has been called for by many stakeholders, both in the UK and around the world (ACCA's Ian Welch has written more about ACCA's work on audit previously; you can read Reshaping the Audit for the New Global Economy for more information).

It is the audit committee, though, that is probably impacted most by the proposals. The committee would be expected to assess the 'effectiveness' of the audit and to assume a heavier responsibility for ensuring that the auditor's independence is not compromised by their provision of non-audit services.

The FRC is certainly on the right lines in seeking to weave together reporting, auditing, and stewardship behind a common purpose of empowering more effective investor participation.

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