The United Kingdom regulator in charge of corporate reporting wants to boost its transparency efforts by adding to its annual report the names of companies that have been asked to make significant corrections in their financial reports.

The Financial Reporting Council (FRC), which oversees financial reporting and corporate governance in the U.K., is proposing to refine its operating procedures for reviewing corporate reporting to include the enhanced disclosure. The details of the revisions were contained in a consultation paper released by the regulator last month.

FRC's Conduct Committee reviews about 250 reports and accounts each year, writing to roughly half of those companies with questions about their financial reporting. While it can ask the court to compel companies to remedy non-compliant reporting, the Conduct Committee instead uses “confidential exchanges” with boards to correct the issues and improve future reporting, the agency said.

Currently if the committee's action results in a significant correction, the committee can ask the company to refer to the intervention in its reports and accounts on a voluntary basis. The FRC also can issue press releases on significant corrections, depending on the facts and circumstances of the case, but rarely does.

The FRC noted that these committee references are “less intrusive” than press notices, but while public information, few know about the committee references because they are contained only in the specific set of accounts where the correction was needed. Typically the regulator does not seek added publicity for committee references, the FRC said.

“However, the steady rash of failures and disappointments emanating from within the business and financial community during the recent economic crisis raised a question concerning the trustworthiness of corporate activity,” the FRC said. “We now operate in a regulatory environment where increased transparency is both expected and required in order to restore trust. Transparency enhances both integrity and reputation.”

As a result, the FRC is proposing to include in its annual report the names of companies that have published committee references and a brief explanation of the correction or issue involved. The regulator said the inclusion of the information will help others learn what the committee considers non-compliant or unacceptable in corporate reporting.

“We believe that investors and potential investors would benefit if we were clearer about our regulatory outcomes,” the FRC said. “Greater visibility about the changes we achieve will provide them with assurance that we are actively monitoring and challenging poorer corporate reporting and securing improvements in the quality of reporting in the U.K.”

The consultation period ends 16 June.

Accounting experts told the industry publication Economia that they welcome the proposed changes. David Littleford, a partner with KPMG, told the publication that the proposal, which he called “name and explain,” merely consolidates publicly available information “into a single place.”

“The FRC's stated objective is to promote transparency of its work, and help restore trust in business,” Littleford told Economia. “The regulator operates by working constructively with the companies it regulates, so I don't believe that the intention or effect of the proposed changes is to ‘name and shame.' I think it would be wrong to badge it in that way as that could only hinder the FRC's ability to achieve its own objectives.”

In other news this week, the FRC released its annual Audit Quality Inspections Report.  The report said overall the audits of listed companies improved, but significant weaknesses are still present in the banking sector. The report looked at the audits of five unnamed banks and building societies for the year ending December 2012, and found more than half needed improvements, according to a report in Reuters

Shortcomings included loan-loss provisioning, too low levels of capital, weaknesses in the testing of loan impairment models, and insufficient challenges of management.

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