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New Corportate Reporting Requirements Slides
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Overview
Secondary legislation to amend the Companies Act 2006 Introduces new corporate reporting requirements for a 'company with a high level of employees and turnover':
- Resilience statement
- Distributable profits figure
- Distribution policy statement
- Material fraud statement
- Audit and assurance policy statement
Does not create ARGA, give more powers to FRC, define PIEs etc – primary legislation needed
Timeline of Corporate Reporting SI webinar milestones:
- March 2021 White Paper on Restoring Trust in Audit and Corporate Governance
- May 2022 Government Response
- July 2023 The Companies (Strategic Report and Directors' Report) (Amendment) Regulations 2023 (the SI) laid in Parliament
- Later in 2023 SI made
- 2024 FRC guidance on the new reporting requirements
- 2025/2026 SI effective
Scope of the SI
What is a company with a high level of employees and turnover?
If in relation to a financial year...
...a company had:
- 750 or more employees; and
- Turnover of £750 million or more
...a group headed by a parent company had:
- Aggregate group employees of 750 or more; and
- Net aggregate group turnover of £750 million or more
CA 2006 defines turnover and employees Additional considerations apply for banking companies and insurance companies
Note:
- No references to public interest entities (PIEs)
- Non-companies (including LLPs and unincorporated charities) not in scope
- No 'smoothing provisions'
Reference: s414CC
New narrative reporting requirements: Strategic Report
Resilience statement
Strategic approach to managing risk or building or maintaining resilience
- Define and explain short term and medium term periods
- Business planning and investment cycles
- Internal governance processes
Principal risks
- Threat to business model, operations, future performance, solvency or liquidity over short or medium term
- List of matters to consider
- Likelihood, impact, time period, mitigations, significant changes
Short, medium and long term
- Going concern assessment – including significant judgements
- Assessment of prospects – including a reverse stress test
- Summary assessment of long-term trends and factors
Exemption available if seriously prejudicial to the interests of the company
Reference: s414CD
New narrative reporting requirements: Directors' Report
Audit and assurance policy statement
Triennial audit and assurance policy (AAP) statement setting out:
Internal auditing and assurance
- Operation and governance of internal auditing and assurance
- Plans for obtaining internal assurance over the annual accounts and reports (including voluntary disclosures)
External assurance
- Plans for seeking external assurance beyond the statutory audit, including any assurance over:
- Resilience statement
- Effectiveness of internal controls over financial reporting
- Policies for the tendering of external audit services
- Reasonable or limited assurance, assurance standards used
Extent to which shareholder, employee and other stakeholder views have been taken into account
Annual update statement on how the AAP has been implemented, external assurance obtained and any amendments
Reference: s416A
Material fraud statement
Annual material fraud statement setting out:
Assessment of risk of material fraud
- How the directors have assessed the company's susceptibility to material fraud
- Types of material fraud considered
Main measures in place to prevent and detect the occurrence of material fraud
- Including any new measures in place or proposed to be put in place
Note:
- Fraud as defined in Fraud Act 2006
- Fraud is material when its nature or magnitude could reasonably be expected to influence the decisions of a reasonable shareholder
- Exemption available if seriously prejudicial to the interests of the company
Reference: s416B
Policy statement concerning distributions and purchase of own shares
Annual distribution policy statement must describe:
Directors' approach to capital allocation, including decisions on:
Investment; capital expenditure; research and development; distributions; purchase of own shares; other relevant matters
Directors' policy towards amount and timing of distributions to shareholders and purchase of own shares
during short and medium term as defined in the resilience statement
Considerations and factors material to policy including availability of distributable profits and cash
Key risks and constraints, including legal constraints,
relevant to implementing and sustaining the policy
How the directors have implemented the policy
and, in doing so, taken into account the considerations and factors, risks and constraints
Reference: s416C
New narrative reporting requirements
Group reporting
In a group strategic / directors' report, each of the new statements must be a consolidated statement relating to the companies in the consolidation
Exemptions for subsidiaries
A company with a high level of employees and turnover is not required to provide the new narrative reporting if:
- It is a subsidiary company at the end of the financial year
- It is included in a group [strategic/directors'] report produced by the company's parent company which
- Relates to undertakings that include the company and its subsidiary companies
- Is prepared for a financial year of the parent company that ends at the same time as, or before the end of, the company's financial year
- Includes a group [resilience statement / AAP statement / material fraud statement / policy statement concerning distributions and purchase of own shares] in respect of all the companies which are included in the consolidation.
Note:
- Must be a UK parent preparing group accounts, group strategic report and group directors' report
Reference: s414CE(1)-(2); s416A(7)-(8); s416B(5)-(6); s416C(3)-(4)
New financial statements disclosure requirements
Additional information about distributable profits, distributions and purchase of own shares
The notes to the individual accounts of a company with a high level of employees and turnover must disclose:
- Profits available for distribution at beginning and end of financial year
- Summary of changes during the financial year, including as a result of distributions and purchase of its own shares
If the company with a high level of employees and turnover is a public company, must also disclose:
- Whether the amount which may be distributed is affected by the s831 net asset restriction
- If so, the amount available for distribution after the application of the net asset restriction, at beginning and end of financial year
The SI does not:
- Change the definition of profits available for distribution under s830
- Affect the existing ICAEW/ICAS guidance Tech 02/17BL Guidance on Realised and Distributable Profits under the Companies Act 2006
Additional considerations apply for insurance companies and investment companies.
Reference: s413A
Option to set out a ‘minimum figure'
If, in directors' opinion, the calculation and disclosure of a figure required by s413A would involve unreasonable expense or delay, the directors may set out a minimum figure.
If so, they must explain in the notes to the accounts:
- Why the calculation and disclosure would involve unreasonable expense or delay
- How the minimum figure was calculated
Exemption for subsidiaries
A 'company with a high level of employees and turnover' is not required to provide the new disclosures if, at the end of the financial year, it is a subsidiary of another ‘company with a high level of employees and turnover’.
Reference: s413A
Effective date and next steps
Effective date
Regulations have effect in respect:
- For companies with equity share capital traded on a UK regulated market, of any financial year which commences on or after 1 January 2025
- For other companies, of any financial year which commences on or after 1 January 2026
Next steps
Parliament / Government
FRC
Companies / Preparers
Investors / Users
Roundtables
Register for our roundtable events
Wed 6 Sep 09:30 – Distributions (online)
Wed 6 Sep 15:00 – AAP, Fraud, Resilience Statement (online)
Tue 12 Sep 15:00 – AAP, Fraud, Resilience Statement (in person)
Tue 19 Sep 15:30 – Distributions (in person)
Please contact [email protected] if you would like to attend any of the sessions. Due to limited capacity, we will only be able to allow one member per organisation for each roundtable.
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