Investors ‘should be given more clarity’ over business risk
Investors should be given more of an insight into how likely businesses are to need insolvency advice.
According to the Financial Reporting Council (FRC), firms should improve on the way they report to stakeholders.
The organisation noted that it has conducted detailed consultations and has concluded that businesses should provide narrative reports that focus primarily on strategic and major operational risks, which could eventually put the firm in a position that requires bankruptcy advice.
It would prefer that enterprises focused on reporting this sort of data, rather than "indiscriminate lists of risks that all companies face".
The FRC will update the Turnbull Guidance on reporting as a result of its consultation and will also decide whether to alter the UK Corporate Governance Code.
Chief executive Stephen Haddrill explained that the consultation is a "step forward" in addressing the problems that have come to light since the financial crisis.
He claimed it is an opportunity to improve the transparency of the reporting process within UK business and boost accountability of all involved in the process.
"Our conversations with companies have revealed a step change in the efforts made by directors to manage risks," he said.
"However, company reports often do not get to the heart of the matter. We hope that by putting an emphasis on the reporting of risks that could undermine the company's strategy or long-term viability, companies will give investors the information they need to help them decide how to allocate capital".
Meanwhile, Auditing Practices Board chairman Richard Fleck added that it is clear that there should be an emphasis on providing greater insight "into the key judgements that underlie financial statements".
Last month, FRC noted that it was in discussions with the government with a view to reducing the financial reporting burden on Britain's smallest businesses, many of which may be in need of insolvency advice in the aftermath of the recession.
