News August 2013 FRC consults on strategic report guidance

FRC consults on strategic report guidance

15 August 2013
PN 082

The Financial Reporting Council has today issued for consultation Guidance on the Strategic Report; applying the requirements for the strategic report in the recently issued Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

The FRC encourages companies to experiment and be innovative in the drafting of their annual reports, presenting narrative information in a way that allows them to ‘tell their story’ to investors concisely; linking related information; and in a fair, balanced and understandable way.
 
Commenting on the consultation, Melanie McLaren, Executive Director Codes & Standards, said:
  “While the new regulations represent a relatively modest change to the existing legal requirements, we hope that our proposed guidance will act as a catalyst for companies to publish more relevant narrative reports, facilitating communication and engagement with investors.  Investors tell us that they want information to be forward-looking and focussed on strategy and the business model; highlighting relationships and interdependencies between information presented in different parts of the annual report; and with an emphasis on materiality and conciseness.
 
The guidance builds on the changes made to the UK Corporate Governance Code in October 2012, requiring annual reports to be fair, balanced and understandable. Along with our project on establishing a framework for disclosure, the guidance is aimed at “cutting clutter” and improving relevance of corporate reporting to investors.  In drafting the guidance we have borne in mind developments in integrated thinking and reporting.”  
Feedback on the draft guidance should be provided by 15 November 2013.
 
The FRC will be holding an outreach event to discuss the proposed guidance towards the end of October 2013.  Further details on this event will be publicised shortly.
 
Notes to editors:
 
  1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
     
  2. The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (the ‘Regulations’) have effect in respect of financial years ending on or after 30th September 2013.  The regulations can be found at:  www.legislation.gov.uk
     
  3. The Department for Business, Innovation and Skills (BIS) asked the FRC to prepare non-mandatory guidance on the application of the strategic report requirements in the Regulations.  The guidance can be found at Narrative Reporting
     
  4. Comments on the draft guidance should be sent to Deepa Raval by e-mail to narrative@frc.org.uk or by post to Financial Reporting Council, Aldwych House, 71–91 Aldwych, London, WC2B 4HN.  Comments should be received by 15 November 2013. 
     
  5. In developing its proposed guidance, the FRC was mindful of ongoing developments in Integrated Reporting. Throughout the development process the FRC met and shared ideas with the International Integrated Reporting Council (IIRC), who share  its goal of improving the quality of corporate reporting. In contrast to an integrated report, the strategic report is an integral part of UK statutory corporate reporting, with its position in the annual report, purpose and content largely determined by legislation.  This fact notwithstanding, the proposed International Integrated Reporting Framework and the proposed guidance in the Exposure Draft encourage similar qualitative characteristics and content. Details of the Consultation Draft of the International Integrated Reporting Framework can be found at the following link:  www.theiirc.org.
     
  6. The final Guidance on the Strategic Report will replace Reporting Statement: Operating and Financial Review (RS 1). 
     

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