UK Company Accounts To Be Overhauled
New rules set out by accounting regulator, the FRC will soon force company accounts to include a report (from the audit committee) about the key risks a company faces, both strategically and operationally.
Following a review of the current auditing system, the FRC have revealed that many audits fail to communicate key information about a company’s potential dangers, resulting in many shareholders being left in the dark about the full extent of their company’s financial health.
Because of this, the FRC have proposed the following changes:
- That company accounts now include a new report outlining the key risks a company faces in terms of strategy and operations (from the last year moving forward)
- Businesses be made to re-tender for chartered accountants every 10 years or be forced to explain why they haven’t
- That any description of the risks a company faces be made easy to access/understand and not be scattered about the report
And it is easy to see why the FRC are so keen to change the auditing system…
Whereas in the past audits focused purely on ensuring that everything added up; the FRC have recognised the importance of getting to the heart of the matter and putting a company’s needs first.
And it will certainly make a difference.
By taking this initiative, companies will be able to avoid any potential dangers which could undermine their strategies and instead have the information they need to better allocate capital.
As Richard Fleck, chairman of the Auditing Practices Board goes on to explain: ‘Audits used to be about making sure everything added up correctly. Now it is more important to assess a company’s soft decisions, such as whether a company has impaired assets, how it has approached sovereign debt issues, or how it has approached future liabilities.’
Yet despite these clear improvements to the auditing system, Fleck makes it clear that company’s still need to think for themselves: ‘We don’t want auditors’ judgements being substituted for management’s, instead we want auditors to make sure that there are no glaring and material omissions or errors.’
So what does this mean for you?
Although these reforms aren’t set to come into action for another 6 months, you don’t have to wait around to witness such dedication to your accounts.
Many chartered accountants, including Barnes Roffe already offer this level of detail to their clients audits, so if you are interested in improving your company’s long term viability, why not take action now.