The content on this page has been converted from PDF to HTML format using an artificial intelligence (AI) tool as part of our ongoing efforts to improve accessibility and usability of our publications. Note:

No human verification has been conducted of the converted content.
While we strive for accuracy errors or omissions may exist.
This content is provided for informational purposes only and should not be relied upon as a definitive or authoritative source.
For the official and verified version of the publication, refer to the original PDF document.

If you identify any inaccuracies or have concerns about the content, please contact us at [email protected].

Reporting by the UK’s smaller listed companies

The FRC does not accept any liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly, whether in contract, tort or otherwise from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it.

© The Financial Reporting Council Limited 2025
Financial Reporting Council
13th Floor, 1 Harbour Exchange Square
London, E14 9GE

1. Executive summary

Introduction

High standards of corporate reporting are important for maintaining investor confidence and underpinning UK companies' access to the capital they need to scale and grow. Through our publications, including focused thematic reviews on complex and emerging reporting areas, we seek to support companies and drive up the quality of reporting.

For smaller listed companies, annual reports are vital for communication with current and potential investors, lenders and creditors, especially due to that part of the market's more limited analyst coverage when compared with the FTSE 350. High-quality annual reports build trust between companies and their stakeholders, often leading to better access to capital and stronger commercial relationships, providing opportunities to drive sustainable growth.

As highlighted in our recently published Annual Review of Corporate Reporting 2024/25, our write-rate¹ for companies of all sizes has declined in recent years. Despite this, a long-term trend persists where companies outside the FTSE 350 are significantly more likely to receive a substantive letter as a result of our corporate reporting reviews. Our enquiries with these companies are also more likely to result in restatements of primary financial statements, although it is worth noting the low number of restatements that affect consolidated profit. We have also observed lower quality in the reporting of smaller listed companies compared to their larger counterparts in areas of presentation and disclosure.

As smaller listed companies are often engines of growth in the economy, the Financial Reporting Council (FRC) would like to see improved reporting in coming years by these companies. This thematic review is designed to help them make the most of their resources to help narrow the quality gap we have observed in corporate reporting.

We performed a desktop review of 20 companies with year-ends between September 2024 and April 2025 operating in a range of market sectors. These companies are either listed outside of the FTSE 350 on the Main Market or on the Alternative Investment Market (AIM). We focused on the requirements of IFRS Accounting Standards where, as part of our routine monitoring work, we most frequently asked substantive questions of smaller listed companies – these are areas that investors have told us they pay particularly close attention to:

revenue;
cash flow statements;
impairment of non-financial assets; and
financial instruments.

These areas have also been addressed in previous publications (see our Bibliography in section 9, and this thematic review reiterates the factors that might lead us to open an enquiry with a company. It also highlights the characteristics we observe in good quality reporting and contrasts this with less informative disclosures.

Key observations

When reviewing the annual reports of companies within our selection, we considered the four areas where, historically, we have been more likely to find potential non-compliance with relevant reporting requirements. They are also topics of investor focus, some of which lead to the most complex or judgemental transactions and balances. Across these areas, we emphasise the need for transparency, accuracy and consistency of reporting. Our key observations are as follows:

Revenue

Companies should ensure they have a clearly articulated accounting policy on revenue recognition, which covers all material revenue streams and is consistent with the company's description of its business model.
Improvements could be made to explanations of the timing of satisfaction of performance obligations, determination of the transaction price, agent versus principal considerations, and the associated judgements. Section 3 provides examples of this.

Cash flow statements

Misclassification of cash flows between operating, investing and financing is one of the most common reasons for our enquiries. This often stems from the lack of clear explanation of specific transactions and the rationale for the treatment of the related cash flows.
Companies should ensure consistency between the amounts disclosed in the cash flow statement and the information disclosed elsewhere. We list the consistency cross-checks that we perform when reviewing cash flow statements in section 4.

Impairment of non-financial assets

It is important that transparent disclosures on impairment reviews of non-financial assets, such as goodwill, reflect a company's reasonable and supportable expectations about its future cash flows and market conditions.
Good quality reporting requires clear explanation of significant judgements and estimates, key assumptions and sensitivity analysis. This must be consistent with the narrative throughout the annual report. Section 5 offers some practical insights on this topic.

Financial instruments

We expect companies to disclose tailored accounting policies for more complex financial instruments, clearly describing the bases for initial classification and subsequent measurement.
Company specific accounting policies and transparency about the nature of financial instruments is key in understanding companies' exposure to financial risks. Financial instrument disclosures provide valuable insight into companies' liquidity and longer-term viability. Section 6 considers this in more detail.

Clear and concise

In all the areas listed above we found room to improve conciseness. Section 7 on clear and concise reporting highlights opportunities for companies to cut clutter and emphasises that good quality reporting does not necessarily require greater volume.

2. Scope and how to use this publication

Scope

We performed a desktop review of the annual reports of 20 companies, with 11 ranked outside the FTSE 350 on the Main Market and nine listed on AIM. Our selection comprised companies with year ends between September 2024 and April 2025. The market capitalisation ranged from around £100m to £500m. All of the companies selected applied IFRS Accounting Standards. Our findings were supplemented by the results of our routine casework.

Our selection excluded companies operating in the financial services sector. In line with the general distribution of smaller listed companies, about half of our selection were companies operating in industrial goods and services, technology and basic resources, with the rest being evenly spread across various other industries.

How this report differs from our previous publications

The main objective of our thematic reviews is to encourage good quality reporting, as we believe that relevant, reliable and transparent financial information is an essential ingredient to a growth economy. We generally do this by focusing on examples of good disclosure.

In this thematic review, we also highlight in greater detail the common triggers for our enquiries to help smaller listed companies identify and address the key areas of ambiguity and omission that may lead to us writing a 'substantive' letter to them. We do this by including hypothetical examples that illustrate both good and inadequate aspects of disclosure.

Using this publication

Hypothetical disclosure examples are included in shaded boxes. They are based on our review of the selected companies and our routine casework. They are summarised to illustrate more prominent aspects of particular disclosures and should not be viewed as complete examples.

During our reviews, we often identify disclosure omissions or inconsistencies where company-specific facts and circumstances may not warrant us asking a substantive question. In such cases we include observations in our letters for which we do not expect a formal response. We encourage companies to take these into account in their future reporting, if the matters are material and relevant.

The bibliography and glossary in section 9 includes links to relevant previous thematic reviews, as well as IFRS Accounting Standard titles referred to in this publication.

Who is this publication for

Companies

This thematic review is primarily intended to help smaller listed companies direct their often more limited resources by encouraging focus on transparency and accuracy of the annual report, particularly in respect of complex or judgemental transactions and balances.
A well-prepared annual report becomes an effective communication tool that builds trust with a company's stakeholders and can help unlock the potential for growth.

Audit committees

Audit Committees may find this thematic review helpful when considering the appropriateness of the accounting polices, estimates and judgements and the clarity and completeness of disclosures in the financial statements.³
In this review we include pointers on what good quality reporting should look like by contrasting this with less informative disclosures. These can assist in challenging management and the external auditor.

Auditors

Auditors of smaller listed companies may find this publication helpful in understanding our approach to reviewing annual reports.
Auditing standards require the evaluation of whether information presented in the financial statements is relevant, reliable, comparable and understandable. This includes considering the quality of the related disclosures.²

Investors

Investors' need for transparent and reliable disclosures coincides with our objective of upholding high standards of corporate reporting.
The areas discussed in this review provide important forward-looking perspectives on a company's business. Investors might use this publication as a prompt to engage with companies to promote better quality disclosures.

Our proportionate approach to smaller listed companies

The approach we currently take when reviewing smaller listed companies is consistent with that taken for those listed in the FTSE 350. However, proportionality and materiality are carefully considered, on a case-by-case basis, at every stage of our review work. We are mindful of our duty to support UK economic growth and to protect stakeholders in the public interest, by promoting high standards in corporate reporting while avoiding disproportionate impact on those we regulate. This is explained further on page 7 of the FRC's 2024/25 Annual Review of Corporate Reporting.

3. Revenue

Revenue is a fundamental metric for any company. It provides an indication of its capacity to fund operations and innovation, and to invest in future growth. Consistency between the business model, accounting policy and details of the main revenue streams is key to understanding the business and its financial performance over the longer term.

We have looked at this topic in previous thematic reviews.⁴ It is common for us to raise queries on the lack of information about significant revenue streams and the associated judgements.

Given the importance of revenue, disclosing a clearly articulated revenue accounting policy is essential to a good quality annual report.

A good accounting policy on revenue recognition is company specific and:

Covers all material revenue streams and is consistent with the company's description of its business model.
Explains the timing of revenue recognition and any related judgements.
Provides details of how the transaction price is determined and allocated, including any material instances of variable consideration.
Is regularly reviewed and updated for any significant changes in the business.

Queries we might raise with companies

We generally ask a question when we identify a risk that a material measurement or recognition issue may exist. The areas where we most frequently raise queries relate to:

Performance obligations
Transaction price and variable consideration
Agent versus principal

Our review identified potential queries, in areas consistent with those listed above, in about 10% of the selected companies. This is similar to our write-rate on this topic in routine reviews of non-FTSE 350 companies last year. In contrast, in that same year, our routine reviews of FTSE 350 companies did not result in any substantive questions about revenue.

On the following pages, we provide examples of good practice and highlight factors that might lead to us raising queries with companies.

Good Quality Example 1: Extract from accounting policy – information about performance obligations (part 1)

Industrial plc's (the Group) main revenue generating activity is the design, manufacture and installation of robotic systems. The contracts with customers are long-term and have a fixed base price. The activities undertaken are combined as a single performance obligation as the customer does not benefit from these on their own and they are not separately identifiable in the context of the contract.

The Group has an enforceable right to payment for performance completed to date, being recovery of costs incurred in satisfying the performance obligation plus a reasonable profit margin. As the systems are bespoke and do not have an alternative use to the Group the performance obligation is satisfied over time. Progress towards complete satisfaction of the performance obligation is measured using an input method, based on costs incurred compared to total expected contract costs.

The period between recognition of revenue and customer payments is always less than one year. Therefore, there is no significant financing component. Where the amount of consideration is variable (e.g. due to late delivery penalties and other similar items) the Group includes the variable consideration in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur. In addition to standard warranties, some contracts include extended service warranties which are a separate performance obligation, with revenue recognised evenly over the extended warranty period.

Good quality application

Information is consistent with the description of the business model in the strategic report (CA2006 S414C 8(b)⁵) and disclosures on revenue disaggregation (IFRS 15.114).
Explanation of when the performance obligation is satisfied (IFRS 15.119(a)) and methods adopted for over time revenue recognition (IFRS 15.124).
Explains when the payment is typically due and whether there is a significant financing component (IFRS 15.119(b)). This information is consistent with classification of trade receivables and contract balances as current on the balance sheet.
Identifies performance obligations and explains whether they are considered distinct. This area is also a key judgement, and it is explained in more detail on the next page (IFRS 15.29).
Explains why over time recognition was considered appropriate with reference to IFRS 15.35(c).
Information on variable consideration and its constraint is provided (IFRS 15.119(b)).
Information on types of warranties and related obligations (IFRS 15.119(e)).

Good Quality Example 1: Extract from accounting policy – information about performance obligations (part 2)

Key judgement: Identification of performance obligations

The Group applies judgement in assessing whether the design, manufacture and installation activities should be combined into a single performance obligation. While these promises are capable of being distinct because these can be sold separately to other market participants, they are not distinct in the context of the contract. This is because the Group provides a significant service of integrating the various activities into the system that the customer has contracted to purchase as one complete package.

Key estimate: Assessment of the percentage of completion of long-term contracts

The long-term design, manufacture and installation contracts require estimates of labour hours and rates, and material costs to determine forecast costs to completion. Where actual costs incurred differ to forecast costs, or where forecast cost estimates change, the assessment of the percentage of completion will be affected and therefore revenue and profits or losses recognised will also be affected. Forecast Costs to Complete (FCC) are closely monitored with weekly and monthly project review meetings. If FCC were 10% higher than forecast at 31 December 2024, the revenue and adjusted operating profit for the year ended 31 December 2024 would have been £1.5m lower. The amounts recognised as contract assets and liabilities are disclosed in note 5.⁶

Good quality application

The judgement explains entity-specific considerations in assessing that there is one combined performance obligation (IFRS 15.123, IAS 1.122).
Sources of estimation uncertainty are explained and additional information on sensitivity is provided. Cross reference is made to the note where the carrying amounts subject to estimation uncertainty are disclosed (IAS 1.125, 129).

Poor Quality Example 2A: Extract from accounting policy – information about performance obligations

Technology plc is a provider of software solutions. Its main revenue streams are the sale of software and specific project work. These are considered separate performance obligations.

Software revenue is recognised at the point the customer has the ability to use the licence.

Other project work includes specific interface development requested by customers and is provided on a fixed price basis. Revenue is recognised over time based on the percentage of completion basis using the input method of actual hours incurred against the estimate of total hours to be incurred.

	Lease liabilities	Borrowings	Total liabilities from financing activities	Cash and cash equivalents	Net debt
Balance at 1 January	(7,500)	(12,250)	(19,750)	4,520	(15,230)
Additions	(325)	-	(325)	-	(325)
Cash flows	1,200	3,000	4,200	5,050	9,250
Finance charges	(125)	(830)	(955)	-	(955)
Foreign exchange	35	50	85	(20)	(65)
Balance at 31 December	(6,715)	(10,030)	(16,745)	9,550	(7,195)

	£'000
Profit before interest and taxation	15,230
Adjustments for:
Depreciation of property, plant and equipment and right of use assets	1,220
Amortisation of intangible assets	530
Profit on disposal of property, plant and equipment	(250)
Decrease in inventory	2,650
Increase in receivables	(4,000)
Increase in payables	1,670
Cash generated from operations	17,050
Interest received	130
Interest paid on borrowings	(1,551)
Taxation paid	(3,510)
Cash flows from operating activities	12,119


Purchases of property, plant and equipment	(12,630)
Purchases of intangible assets	(1,325)
Sale of shares in subsidiary company	7,500
Disposals of property, plant and equipment	2,300
Cash flows from investing activities	(4,155)


Dividends paid	(5,610)
Movement in borrowings	(2,600)
Payment of contingent consideration	(14,500)
Principal element of lease payments	(1,250)
Cash flows from financing activities	(23,960)

Reporting by the UK’s smaller listed companies

File

Is this page useful?