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Essential Corporate News – Week ending April 28, 2017

Publication April 28, 2017


Introduction

Welcome to Essential Corporate News, our weekly news service covering the latest developments in the UK corporate world.

FRC: Auditors and preliminary announcements – Discussion Paper

The Financial Reporting Council (FRC) published a Discussion Paper on April 27, 2017 to stimulate discussion on the use and value of preliminary announcements and the role of the auditor in respect of such announcements. The Discussion Paper includes a number of possible options and views on those options will drive revisions to auditor guidance in Bulletin 2008/2, The Auditor’s association with Preliminary Announcements made in accordance with the requirements of the UK and Irish Listing Rules. This Bulletin, last updated in 2008, needs to be updated to reflect subsequent changes in law, regulation and applicable accounting standards.

The Discussion Paper summarises the key legislative and regulatory requirements relating to preliminary announcements, as set out in the Listing Rules and Companies Act 2006. It then analyses current practice among listed and AIM companies and evaluates the current guidance and options for change.

Current practice

  • The number of listed and AIM companies continuing to issue preliminary announcements remains high (though publication for listed companies has not been required since 2007).
  • FTSE 100 companies take on average 52 days from their year end to the results announcement, with AIM companies taking on average 98 days.
  • In most cases auditor’s reports have been signed on or before the date of preliminary announcements.
  • The average time to complete the audit after the preliminary results have been issued is 2-3 weeks for a listed company and just over a month for AIM companies.

Possible options for change

  • Bulletin 2008/2 could be converted into an engagement standard or regulators could establish a requirement that when preliminary results are disclosed, auditors should be aware of the relevant FRC guidance and be prepared to explain where they chose not to follow it in the conduct of an engagement. The guidance could also be extended to voluntary engagements by companies outside the main market so that, for example, AIM companies could be required to agree the release of preliminary announcements with their auditors.
  • Currently the auditor’s report on the statutory final statements does not have to be signed before auditors can agree to publication of preliminary results but this position could be changed.
  • An auditor’s report could be included with preliminary announcements confirming their agreement, describing the extent and scope of their work and/or setting out key information derived from the auditor’s report on the statutory financial statements.
  • The definition of a preliminary announcement in the Bulletin may need amending which could potentially change the scope of procedures required for an auditor to agree publication.
  • Auditors could be encouraged or required to assess whether the material in a preliminary announcement is “fair, balanced and understandable”, there could be specific guidance on the application of materiality, there could be more clarity on the auditor’s responsibilities in respect of “other information” (and more consistency with the approach in ISA (UK) 720) and the material on Alternative Performance Measures in the guidance could be updated.

Next steps
Comments on the Discussion Paper are requested by June 23, 2017. Bulletin 2008/2 will then be revised and there will be a formal consultation on any changes the FRC proposes to make.

FRC, Discussion Paper – Invitation to Comment: Auditors and Preliminary Announcements (April 2017)

Best Practice Principles Group: Consultation to review Principles

On April 21, 2017 the Best Practice Principles Group for Shareholder Voting Research and Analysis (BPP Group) announced a review of its Best Practice Principles by the end of 2017.

In 2014 the BPP Group developed the Principles which signatories are expected to adopt on a comply-or-explain basis, see Proxy advisors: Best Practice Principles for Shareholder Voting Research 2014. In publishing its new review, the BPP Group aims to achieve its original objectives and seeks to improve practice and transparency in the market. The aim is to ensure that the Principles should be able to be applied in all markets for which voting research and analysis is provided, and by all providers of such services. The update will also address the transparency requirements for proxy advisers outlined in the amendments to the revised EU Shareholder Rights Directive adopted on April 3, 2017.

A public consultation on the Principles will be held in the summer of 2017 and the Principles will be reviewed by the end of the year. An advisory stakeholder panel, comprised of members from companies, asset owners, asset managers, and other constituencies, will be established to provide input to the preparation of the consultation and any subsequent revisions to the Principles.

(Best Practice Principles Group, Press Release, 21.04.17)


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