Company accounts unreliable

A report from The Financial Reporting Review Panel has established that nearly one in three company accounts are unreliable. The figures revealed that it reviewed 311 corporate financial reports last year and in 43% of cases, they had to be returned to the directors and request clarification.

In nearly a third of cases, the Review Panel’s involvement led to the company taking action to improve their financial reporting. The rapid increase in the number of unsatisfactory company accounts follows the introduction of the new IFRS global accounting standards which Stock Exchange-quoted companies had to implement in 2006.

The figures are bound to concern regulators as IFRS standards now also have to be taken on board by companies listed on the secondary Aim exchange where regulatory adherence has traditionally been more laid back.

Review Panel chairman Bill Knight, a top City lawyer, said the Panel recognised several areas where companies could improve the quality of their future financial reporting. He added that it is vital that businesses adhere to accounting standards.

More than 25% of FTSE 100 companies under review were asked to carry out improvements, increasing to 41% of small-cap fully listed companies. A quarter of Aim companies investigated still fell foul of the Review Panel, in spite of being unaffected by the IFRS charges.

The panel aims to be stricter on ‘questionable accounting treatments’ surfacing from the new standards ‘before they become established practice’.

During the year, the panel reprimanded 4 companies for unreliable accounting. Sanctuary Group over modified accounting policies that were discovered to be correcting basic errors. Highams had mistakes in its share valuations. Inveresk was questioned over its land-sale accounting and finally, Eurovestech wrongly applied the ‘true and fair’ override to change the accounts.

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