The U.K.’s financial reporting regulator will direct its focus onto smaller listed companies next year, putting the spotlight on those outside the FTSE 350.

The Financial Reporting Review Panel said it would be scrutinizing smaller companies in niche markets as a priority because in a sluggish economy they faced greater risks than big, diversified businesses.

It will also pay more attention to companies in the commercial property, insurance, travel and support services sectors – especially where support companies are exposed to cuts in public sector spending.

The panel has the power to make companies restate their financial statements if it disagrees with their accounting practices or disclosures. Outside of each year’s priority areas, it reviews some companies that it selects randomly and some in response to complaints received.

The panel has never actually taken legal action against a company; a statement pointing out unacceptable practice has always been enough to make an errant company change its ways.

Reflecting on its current workload, the panel said it was contacting an increasing number of companies to demand better narrative reporting.

The identification and description of principal risks and uncertainties is still a problem, the panel said, with boilerplate disclosures or long lists of generic risks. It also wants companies to provide more balanced narrative reporting, rather than focusing on the good news.

“There is an obvious temptation for directors to put the best face on things, but a balanced account is more credible,” said panel chairman Bill Knight.