Financial watchdog focuses on supplier relations
The news emerged after last year’s accounting scandal at Tesco, which revealed a £263M overstatement in profits related to supplier payments. This is currently the subject of investigation by the Serious Fraud office, the Groceries Code Adjudicator (GCA) Christine Tacon and the FRC.
The FRC’s annual report covered its inspections of audit quality in the UK and individual reports on five of the largest firms. It inspected 109 private sector audits and said that, while overall the quality of auditing in the UK was improving, further action was required to address recurring issues.
It announced that In 2015/16 it would focus on the audits of businesses where complex supplier arrangements were prevalent, predominantly food, drink and consumer goods manufacturers and retailers.
Supplier arrangements
The FRC will pay particular attention to the extent to which audit teams have challenged and checked the appropriateness of how supplier arrangements are accounted for. It also plans to inspect a number of first-year audits to assess the extent to which changes in auditors have an impact on audit quality.
“Audit is an integral part of the reporting process that ensures investors have confidence in the information they receive on the performance of the companies they invest in,” said FRC executive director, conduct, Paul George.
“We were pleased that firms responded positively to the new extended auditor reporting requirements. We hope to see further improvements in the clarity of reporting by auditors of how they have addressed the assessed risks. We also expect auditors to discuss findings from our inspections to audit committees and will monitor closely how companies report our findings to their shareholders.”
The FRC’s plans emerged following a new global risk management survey from risk management specialist Aon found that damage to brand and reputation was the top risk for food and drink firms, alongside shifting commodity prices and regulatory oversight.
The survey sample consisted of 55 major food and drink manufacturers, 50 of which represent companies with staff numbers from 250–50,000+ and most of which operated internationally. The respondents were mainly chief and chief financial executives as well as risk or insurance managers at those firms.
Threat to brand and reputation
The results showed factors such as price volatility of raw materials remained top of the industry’s list of worries but was joined as equal number one in 2015 by the threat to brand and reputation. Meanwhile, entering the top three was the risk presented by increasing regulatory oversight. This factor came eighth in Aon’s last survey in 2013, but rose to third this time around.
“The food and drink industry has been a global success story in recent years … but has faced a number of high profile challenges,” said Norman Andrew, executive director at Aon. “The results of Aon’s Global Risk Management Survey paint a very clear picture of the concerns amongst risk managers in the sector and reflect the changing environment in which they work.
“It’s clear that food and drink companies view their brands as a prized asset and without them they cannot trade profitably. However this perception is interesting given that only 8% of respondents can confirm they have actually suffered some kind of material loss because of damage to their brand or reputation. The industry as a whole says the threat is now of equal importance to them as the price of ingredients.”
