The complex relationships between retailers and their suppliers is to be investigated by the Financial Reporting Council (FRC) as it pledges to help smaller businesses. 

The FRC announced the move in its 11th annual Audit Quality Inspections report, published today (29 May). It covered its inspections of audit quality in the UK as well as individual reports on five of the largest firms and decreed that more work was required to address recurring issues.

The FRC said smaller companies have less resource to put into the preparation of their financial statements and this can make the audit more difficult but it is more important given the absence of other analysis. It wants to help smaller companies achieve better audits.

It announced that over the next year it would look at the audits of businesses where complex supplier arrangements were prevalent, with a focus on food and drink manufacturers and suppliers. It will pay particular attention to supplier arrangements in how they are accounted for and also plans to inspect a number of first-year audits to assess the affect changes in auditors bring.

Paul George, executive director, conduct, said: “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.

“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.”