Businesses have been told to up their game in key elements of corporate governance and reporting, after a review found a multitude of basic errors and misapplications of the UK corporate governance code in reports.
The Financial Reporting Council (FRC), a watchdog and regulator which aims to promote transparency and integrity in business, made the findings as part of its ‘Developments in Corporate Governance and Reporting’ review, published today.
Based on a review of 220 annual and interim reports, the FRC found that many companies had failed to explain why they had not complied with the code.
The report found there were continued weaknesses in companies’ reporting on the health of their accounts, and said many firms were giving an unbalanced depiction of their performance – with some showing a tendency “to rely on overly-optimistic judgements”.
Paul George, the FRC’s executive director of corporate governance and reporting, said: “A lack of transparency in financial and governance reporting, undermines trust in business. More accurate reporting and better governance practices are needed to reverse this trend.“
“The UK faces challenges with corporate reporting after EU Exit,” he added. “Companies should therefore do more to meet the expectations of the market and society in order for the UK to maintain its position as an attractive home for global capital.”
The FRC is introducing several changes to its governance code, that will take effect in the new year and cover areas like audit, banking and contractual agreements. It will also undertake a new project to prompt debate on what the future of corporate reporting should look like.
It found there was “still much to be done” to improve public trust in business – which has flatlined over the past year – particularly in the wake over anger over the collapse of construction firm Carillion and disputes over executive pay.