The latest FRC corporate reporting review offers a warning for investors, directors and finance teams beyond the UK. The Financial Reporting Council’s 2025/26 review found that five areas generated the most substantive questions: cash-flow statements, financial instruments, asset impairment, fair value measurement and revenue recognition.
That does not mean every company queried had misstated its accounts. The FRC selects reports using a risk-based approach and asks substantive questions where there appears to be, or may be, a material breach of reporting requirements. Its figures are indicators from the companies reviewed, not error rates for all UK businesses.
Still, the themes matter internationally. They sit mainly within IFRS Accounting Standards, used for all or most listed companies in more than 140 jurisdictions. Each involves technically difficult judgements that can be highly important to investors.
1. Cash-flow statements: where cash really came from
Cash-flow statements were the FRC’s most frequent topic, raised in 7% of reviews. Seven companies restated their cash-flow statements after FRC enquiries, compared with 12 in the previous year.
Total cash movement can be correct while its classification is misleading. A business presents cash as operating, investing or financing activity, and that split affects how readers judge earnings quality, liquidity and debt-servicing capacity.
The FRC raised questions about group loans, dividends, acquisition-related borrowing, purchases of non-controlling interests and spending on internally generated intangible assets. It also found cases where cash-flow statements did not match related notes, or where non-cash transactions appeared in cash flows.
For investors, strong operating cash flow is often evidence that profits are converting into cash. For small business owners, the point is that cash reporting is not merely compliance: lenders, suppliers and potential buyers may scrutinise how a company generates and uses cash.
2. Financial instruments: financing structures can hide complexity
Financial instruments were queried in 6% of reviews. Three companies restated primary statements, including two cases involving inappropriate offsetting.
This category includes loans, trade receivables, overdrafts, factoring arrangements, cash pools and credit-loss provisions, as well as derivatives. These are common features of businesses operating across borders or using supply-chain finance.
Recurring concerns included whether an instrument was equity or a liability, whether factored receivables should be removed from the balance sheet, how amortised cost was measured, and whether cash and overdrafts could be offset. The FRC also questioned expected-credit-loss assumptions and disclosures.
Similar financing arrangements can have very different accounting outcomes. If a company still bears the risk of unpaid invoices, a factoring deal may not mean receivables have truly left its balance sheet. These risks can change reported debt, working capital, finance costs and liquidity without changing the underlying business relationship.
3. Asset impairment: the test of management optimism
Asset impairment appeared in 4% of reviews, down from 10% a year earlier but still among the FRC’s leading concerns.
Impairment testing asks whether assets, including goodwill, are worth at least their carrying amounts. It combines management forecasts, discount rates, market conditions and assumptions about future growth. Small changes can have a large effect in difficult economic periods.
The FRC focused on disclosure of key inputs, sensitivity analysis and headroom—the amount by which estimated value exceeds the recorded amount. It also examined whether tax assumptions were used consistently in value-in-use calculations, how goodwill was allocated to cash-generating units, and whether risk discussions matched accounting disclosures.
An impairment charge is not required for this information to matter. Investors need to know how close an asset is to failing its test. Thin headroom may signal vulnerability if sales weaken, borrowing costs rise or margins fall.
4. Fair value measurement: numbers built on models need explanation
Fair value measurement entered the FRC’s top five at 4% of reviews, up from 1% in 2024/25. Nearly half of the year’s fair-value questions came from a thematic review of investment trusts, venture-capital trusts and similar closed-ended entities.
The problem was often not a missing disclosure, but an unclear explanation of how fair-value requirements and valuation methods had been applied.
This is especially important for Level 3 valuations, where prices are not directly observable in an active market. Private companies, infrastructure assets, venture investments and specialised property may be valued using models. Assumptions about discount rates, future earnings, comparable transactions or exit multiples can drive reported net asset value and performance.
The FRC called for company-specific explanations of techniques and inputs, plus quantitative information about unobservable inputs and sensitivities where required. A valuation figure is more useful when investors can see what would make it move.
5. Revenue recognition: performance is not always the same as sales booked
Revenue recognition remained in the top five despite falling to 3% of reviews from 5%. One company restated primary statements following an FRC enquiry.
Questions centred on accounting policies and significant judgements, including variable consideration in performance-based contracts, recognising contract revenue up front, repurchase arrangements, principal-versus-agent decisions, freight obligations and capitalised customer incentives.
These issues are common in businesses with long-term contracts, marketplaces, distributors, rebates, loyalty arrangements or installation and delivery obligations. The question is not simply whether cash has been received, but whether the company has completed the promised goods or services that justify recognising revenue.
For users of accounts, unclear revenue recognition can make growth look stronger, earlier or more certain than the economics support.
What to watch next
The five themes provide a practical checklist: follow the cash, understand financing, test valuation assumptions and ask when revenue was truly earned.
A major reporting change is also ahead. IFRS 18 becomes effective for annual periods beginning on or after 1 January 2027. It will introduce defined profit-or-loss subtotals, require disclosures about management-defined performance measures and require retrospective application, including comparative restatement.
That may renew attention on alternative performance measures and how companies explain results. The FRC’s findings are not a verdict on reporting outside the UK, but they show where IFRS application is most likely to demand careful judgement, clear disclosure and informed scrutiny.