Materiality in practice: better, not more
Published: 30 October 2023
1 minute read
Annual reports and accounts for most public companies have become longer and more complex. Investors have demanded more information to help them decide where to allocate their capital. In response, legislation and regulation have placed greater obligations on those companies. Much of the growth has been in respect of sustainability matters. Large, global companies have sought to better describe their operations, and expand their reporting to meet the needs of their wider stakeholders.
This causes challenges for both companies and users. Companies are preparing ever longer annual reports and accounts in the same limited timeframe. Users are spending more time analysing an ever-expanding volume of reports, as the information is not always presented in a way that is decision useful.
Boards and management understand the key value drivers of their businesses. This means they’re well positioned to apply materiality in evaluating what information will meet general investor needs.
From our conversations with stakeholders, it has become clear that everyone in the corporate reporting ecosystem has a role to play in addressing this issue.
The FRC will continue to do our part. In the next 12 months we will:
- Provide this first set of suggestions for companies on applying a materiality mindset;
- Continue to engage with standard-setters, policy makers and other parties to consider how new or updated standards, regulations and policy drive reporting requirements, and how to best integrate those into a package of decision useful information. For example, we are supporting DBT with the Smarter regulation non-financial review;
- Encourage the wider discussion of materiality and reporting at a global level and support practical advice and research to aid companies in preparing high-quality, decision useful information;
- Publish further research on how investors use business model disclosures, as well as undertaking work in 2024 on what stakeholders need from corporate reporting;
- Continue to bring together members of the corporate reporting ecosystem to discuss concerns and pressures faced by all parties; and
- Build on the lessons of What Makes a Good Annual Report and Accounts by using our supervision work to identify examples where materiality has been used effectively to drive high quality reporting.
This is not the end of our work on materiality. We welcome your views and comments– please get in touch.
Mark Babington,
Executive Director, Regulatory Standards