Overview
We believe it is important for Audit Committees to have access to insights and support on the important and emerging issues on the Board agenda. PwC's programme for FTSE 350 (and equivalent) Audit Committee Chairs and members offers a series of events featuring topics relevant to Audit Committees.
We have produced a summary based on current hot topic areas which were featured at our most recent Audit Committee Network virtual event. The five areas we covered were an Accounting update, Corporate Reporting and ESG developments, the Economic environment, Regulatory matters and a Tax update.
Accounting
The overview provides an update to several issues for businesses at the moment. Firstly inflation where there are a whole host of potential accounting and reporting effects brought on by the current situation. The FRC is expecting to see risks and uncertainties around inflation disclosed in strategic reports. Secondly, there is potential for the inflationary environment to affect reportable segments. And that's because one of the criteria for aggregating segments is that they must have similar economic characteristics. So while a lot of companies might apply that, for example, to an EMEA segment, they might now need to ask and justify whether that is still appropriate given the state of the global economy.
Corporate Reporting and ESG developments
Back in 2020, the UK government said most UK companies would fall within the scope of some form of mandatory climate-related reporting, more specifically the Task Force on Climate-Related Financial Disclosures (TCFD) reporting, by 2025. Significant progress has been made. Premium-listed companies have just had to comply with the listing rules requirements for this reporting cycle. However, for those sitting on the audit committee of a standard listed company, LLP or a large private organisation, they will be falling within the remit of TCFD or TCFD equivalence reporting over the next year or two.
Economic environment
The economy is consistently evolving, let’s not forget the phrase ‘economists have successfully predicted nine of the last five recessions.’ The question is not whether we will enter a recession but how deep we will go. There are several inflation drivers, including supply chain disruption, which has been pretty constant over the past year alone. While there is some easing, it could take another year before the blockages around ports and shipping, caused by the Russia-Ukraine war, are resolved.
Regulatory matters
In this overview we can see that following the Government’s Response Statement to the Department for Business, Energy and Industrial Strategy (BEIS) consultation and the Queen’s Speech laid out the legislation that the UK government is planning. The UK government also issued its all-encompassing response statement. It was a big package of reforms that largely reflects what was in the initial consultation, albeit with some differences. It is going to mean quite a lot of change. The timescale is uncertain. Given the status of the legislation, there could be a year’s delay for a number of the reforms. But there are a variety of mechanisms they could reform, which means we’ll see changes and developments over the next few years.
Tax
There’s very often a tax dynamic to each issue discussed in this overall update. That means it is worth making sure you don't forget about tax. Looking at the UK domestic environment, there's change afoot. Let’s focus on policy first. There are conflicting views in the press and no doubt among the electorate around what the proposed corporation tax rate might mean in April next year. The change is baked into companies’ balance sheets now in terms of carrying their deferred tax balances. Changes at the Treasury might mean that the proposed rate increase doesn't materialise. The government has a challenge in getting the balance right: not being seen to be soft on corporations while the electorate suffers from the cost of living crisis but also making sure that it does what it can not to overtax the stalling economy.
