FRC calls for transparent disclosure of tax risks in corporate reports 

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The Financial Reporting Council (FRC) will conduct a thematic review of companies’ tax reporting to encourage more transparent recording of the relationship between the tax charges and accounting profit. The required disclosures are key to helping users understand the significant factors that could affect that relationship in the future.

The FRC will write to a number of FTSE 350 companies prior to their year-end, informing them that the Corporate Reporting Review Team will review the tax disclosures in their next published reports. The aim of this monitoring activity is to drive continuous improvements in the quality of corporate reporting.

The FRC plans to take a particular interest in:

  • the transparency  of tax reconciliation disclosures and how well the sustainability of the effective tax rate is conveyed; and
  • uncertainties relating to tax liabilities (and assets) where the value at risk in the short term is not identified.

Companies are required to disclose the principal risks and uncertainties they face and are expected to explain the actions they propose to mitigate the impact of those risks.  The FRC’s targeted review will consider the totality of the companies’ reporting including relevant disclosures in their strategic and other narrative reports as well as the detailed accounting disclosures.

Geoffrey Green, Chairman of the FRC’s Financial Reporting Review Panel and member of the Conduct Committee, said:

“There is considerable public interest currently in international tax arrangements, prompted by developments both in the UK and on a global basis. Investors have a heightened interest in wanting to understand the policy decisions made by companies and the impact these have on their current and future accounts. Through the FRC’s Clear & Concise initiative, the FRC aims to stimulate boards to review their tax disclosures to ensure their annual reports provide high quality information for investors.  Companies which are clear about their tax risks will be looked to as examples of good practice while in other cases, there will be an identification of where improvements may be made. Consistent with its overall objective, the FRC will consider how to publically share the best of what is seen to help others raise the quality bar on this aspect of their reporting”.

Source: FRC

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