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The Panel reviewed 311 sets of accounts, drawn from the full range of companies within the Panel’s remit. Of these, 266 were selected by the Panel and 45 were reviewed as a result of complaints, referrals or press comment, whereas 227 were prepared under IFRS and 84 under UK GAAP. Its activity report covering the year to 31 March 2007 completes the Panel’s findings from its review of first-time implementation of IFRS.

The Panel found a good level of compliance overall with the international accounting requirements but identified a number of areas where companies could improve the quality of their future financial reporting. These are set out in the report. These points may be of particular help to boards of AIM-quoted companies, many of which are now in the process of preparing their first annual accounts under IFRS.

Responses to the Panel’s letters of enquiry were generally well considered and reflected the investment companies had made in considering the transition to a new reporting framework.

Breach of accounting requirements

The Panel continued to react to matters bought to its attention by investors and other users of financial information, by press comment and by referrals from other regulators. Of the 45 annual accounts considered as a result of complaint or referral, 10 gave rise to undertakings of improvements in future
years; 9 cases are still in progress.

The Panel encourages investors and others to bring accounts to its attention if they think that there may be a breach of accounting requirements. In particular, the Panel welcomes referrals from professional investors as this is the section of the financial community most likely to consider and compare
the accounts of companies subject to the regulatory scope of the Panel.

The Financial Services Authority (FSA) has confirmed that, in its view, such referrals do not give rise to price sensitive information as they do not necessarily mean that the Panel will conclude, on enquiry, that there are any areas of accounting non-compliance.

The FSA Code of Market Conduct provides that disclosure of inside information by market participants does not amount to market abuse (improper disclosure) if it is made to a regulatory body or authority, such as
the Panel, in connection with the performance of its functions.

Omissions 

The Panel writes to companies asking for additional information, explanation or clarification only if there is, or may be, a question of whether the accounts comply, in a significant aspect, with the accounting requirements of the Companies Act 1985.

More minor points of possible omissions of disclosure that come to the Panel’s attention are often included in an appendix to the letter. These matters may not be applicable or sufficiently material to warrant disclosure. Alternatively, they may have been overlooked. The Panel brings such issues to management’s attention so that they may be considered when the next set of accounts is prepared. Companies are not required to respond to the Panel on these issues, although many do. This approach helps to ensure that
company and Panel resources are focused on issues of potential substance.

Occasionally, the Panel writes to a company where there are no points of potential substance but where a number of more minor disclosures may have been omitted. This type of letter is more often issued to smaller companies whose accounts are not likely to be reviewed again in the short term and where the letter could help raise the quality of the company’s future accounts. The Panel wrote seven such letters during the year.

Questionable accounting treatments 

Commenting on the findings, Bill Knight, Chairman of the Panel, said: “It is important that companies comply with accounting standards. The majority work hard to do so and our aim is to help.”

In 2006/07, the Panel reviewed 311 sets of accounts (2005/06: 284) and wrote letters to 135 companies (2005/06: 82) asking for further information about areas of possible non-compliance with the accounting requirements of the Companies Act 1985 or Listing Rules.

The increase in the proportion of Panel enquiries when compared to last year is, in the Panel’s view, due to the approach the Panel adopted in reviewing first-time IFRS accounts, rather than to any deterioration in the quality of financial reporting.

"The Panel took the view that it was sensible to challenge seemingly questionable accounting treatments and disclosures which appeared inadequate before they became established practice. If debates are to be had as to the appropriate application of international requirements, it is better that they be had at an early stage," according to the report.

Compliance 

The Panel’s review of IFRS accounts found a good level of compliance with the international requirements which testifies to the thoroughness of the preparatory work undertaken by preparers and auditors. This report focuses on areas where there is room for improvement but this should be seen in the context of a level of compliance which was good overall.

The Panel wrote to 45 per cent of FTSE 350 companies whose annual accounts it reviewed compared with 57 per cent of listed companies outside the FTSE 350.

Company responses to the Panel’s letters of enquiry were generally very well considered. There was evidence of engagement by company audit committees as well as involvement of external auditors.