The Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance, has published a discussion paper arising from its project on reducing complexity in corporate reporting.

The paper’s title - Louder than Words: Principles and actions for making corporate reports less complex and more relevant – is intended to remind all of those involved in corporate reporting that it is what we all do in practice that affects the quality and readability of corporate reports.

The paper seeks to address growing concerns about the complexity of corporate reporting. Many people point to the increasing length and detail of annual reports – and the regulations that govern them – as evidence that we have a problem.

The paper recommends a commonsense approach to reducing complexity based on eight guiding principles – four for better communication in reports and four for improving the quality and effectiveness of regulations. It also recognises that there is no easy solution and that change will only happen if all of those involved in corporate reporting make a concerted effort.

Ian Wright, the FRC’s Director of Corporate Reporting said:

‘The FRC and many others agree that regulations themselves should be principles or outcomes based. So shouldn’t those setting the regulations and standards also do so within a principles-based framework? We set out four simple principles that we believe should govern the way regulators create and communicate the standards that govern the content of annual reports. Regulations should be targeted, proportionate, coordinated and clear.’

The paper also makes five calls for action where the FRC believes further investigation may lead to opportunities for reducing complexity. These are:

1. Cash flow and net debt reporting: could this be better aligned with user needs such as by including a net debt reconciliation?
2. Wholly owned subsidiaries reporting requirements: could we find ways to reduce the reporting burden such as by reducing the filing or disclosure requirements?
3. Cut clutter: could preparers reduce immaterial information (with the support of regulators) that may be undermining the quality of reports?
4. Disclosures: could we overhaul the process for creating disclosures and provide guidance about when they can be deleted as not relevant?
5. IFRS: could we improve usability through logical organisation and clearer articulation of the desired outcomes for each standard?

Paul Boyle, Chief Executive of the FRC said:

“Complexity in corporate reporting is a multi-faceted problem that will require changes in behaviour from all members of the corporate reporting community, including standard-setters, company directors, auditors and regulators. We hope that this paper will stimulate change.”

The FRC is hoping that the discussion paper will lead to debate within the UK and global financial reporting communities. We hope that respondents will help us identify priorities and offer to take on projects to help reduce complexity in the future. The FRC welcomes comments on its paper from a wide range of constituents by 30 October 2009.

1. The Financial Reporting Council (FRC) is the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. Comments should be sent by email or post to:

   Melanie Kerr
   Financial Reporting Council
   5th Floor Aldwych House
   71-91 Aldwych
   London WC2B 4HN.

   Email: complexity@frc.org.uk

3.  All Press enquiries should be addressed to Jon Hooper, Head of Communications, telephone: 020 7492 2344 or email: j.hooper@frc.org.uk or to Ian Wright, Director of Corporate Reporting on 020 7492 2330.