The Financial Reporting Review Panel today announced that its review activity in 2010/11 will focus on the following sectors: 

Commercial property. 

Advertising.

Recruitment. 

Media.

Information technology. 

Banking, housebuilders and travel and leisure have featured as priority sectors for the last two years. As companies enter the next stage of the recession where the outlook for corporate spending is uncertain, the Panel is turning its attention to sectors that rely heavily on discretionary spend and which might be stretched in the short term.
Advertising, media, recruitment and technology all featured in the Panel’s priority list last year as deserving attention but this year they take centre stage.
Annual reports and accounts will continue to be selected from across the full range of companies within the Panel’s remit and will also be selected for review on the basis of company-specific factors and complaints.
Recent economic pressures on companies have led some to make changes to the way in which they do business, particularly where this helps them to manage their cash flow. These companies may need to take a fresh look at their accounting policies that impact on the measurement of earnings, such as revenue recognition and the expensing of costs, to ensure that they remain appropriate. The reporting and accounting impact of changes to business models is likely to be a focus of the Panel’s work for 2010/11.
Commenting on areas of reporting where this might be reflected, Bill Knight, Chairman of the Panel said:
Companies who are seeing their business models develop to meet the challenges of the recession will need to reconsider their revenue recognition policies to ensure that they still reflect their business activities. The Panel will pay particular attention to the accounts of those companies which appear to apply aggressive policies compared with their peers.

Discussion points

1 Is it a good idea for the Financial Reporting Review Panel to focus on particular industry sectors in monitoring the quality of financial reporting?
2 Why is it more likely that the industries listed for attention could face more ‘challenges’ in recognizing revenues and in expensing costs?