Smaller quoted companies: Investors value quality reports

By Amy Hutchinson, Assistant Director, Technical Policy

4 August 2015

Amy Hutchinson summarises the key points in ICAS' response to FRC Discussion paper: Improving the Quality of Reporting by Smaller Listed and AIM Quoted Companies.

ICAS supports the FRC's work in the area of corporate reporting by smaller quoted companies. Such companies are an important sector of the economy, as highlighted in the recent EC green paper 'Building a Capital Markets Union', therefore this is a timely and relevant initiative by the FRC. 

ICAS believes that high quality corporate reporting is a key element of the efficient functioning of the capital markets. Good reporting can assist companies in their access to finance.  Whilst we agree with many of the issues raised in the report, and with the approach taken, generally, we believe that reporting by smaller quoted companies is of a good standard.  Moreover, it is important to recognise that there are factors limiting smaller companies' ability to improve the quality of their reporting, such as the availability of resources.  These constraints need to be taken into account in ensuring that follow-up actions and recommendations arising from this project are proportionate and achievable.

ICAS response to FRC Discussion paper

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The message that good quality reporting by smaller quoted companies is valued by investors and therefore beneficial to the companies themselves is the key point arising from this project. Additionally, the investor engagement undertaken is a useful resource which should be highlighted to the preparer community.  Preparers' perceptions of the extent to which annual reports are used by investors appear to be at odds with the reality of the value that investors place on reporting. Closing this gap could be a key factor in improving reporting. 

Therefore we agree with the FRC's proposal to provide focused annual reminders to boards of smaller quoted companies setting out key areas of focus etc., and to facilitate more engagement between companies and investors. Such initiatives will remind such companies of the importance of reporting, and assist them in keeping up-to-date with all relevant reporting requirements. 

Overall, the report highlights that the major concerns of investors and preparers are the length and complexity of financial reports. These issues are not specific to smaller listed companies.  These problems should continue to be addressed on the basis of a single disclosure framework under IFRS, which should ultimately be principles-based and sufficiently flexible to be applied to different sizes of entities.  Key to this is the IASB's 'principles of disclosure' project – on which a discussion paper is expected by the end of 2015. 

ICAS has been active in the debate on financial statement disclosure since the publication of our well received 2011 report with NZICA – 'Losing the Excess Baggage'. Along with the IASB's project, we also believe there is a need for a change in the mindset of some of those in the financial reporting and wider business communities. They need to stop viewing annual reports as mere compliance documents to one which sees them as a key mode of communication with investors. This is particularly true for smaller listed entities. In short, they need to tell the story of the business.

ICAS also believes that in general auditors provide appropriate advice to companies in this sector. There is however, merit in considering whether greater clarity is needed for auditors on the extent to which it is appropriate for them to advise smaller listed companies on reporting matters. The forthcoming revised ethical standards for auditors may provide an opportunity to explore how this could be achieved.


  • Consultations and responses
  • Corporate and financial reporting

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