FRC promotes clear and concise reporting through strategic report
17 December 2015
The Financial Reporting Council (FRC) has identified that the introduction of the Strategic Report and the FRC's Guidance on the Strategic Report has had a positive effect on the quality of corporate reporting. Many companies have embraced this as an opportunity to rethink how they communicate with investors.
The FRC has today issued a report, Clear & Concise: Developments in Narrative Reporting (PDF), which includes practical tools to help companies achieve Clear & Concise reporting and provides an overview of developments in narrative reporting. It also includes a study reviewing the influence of the FRC’s Guidance on the Strategic Report since its publication in 2014, which found that annual reports have become more cohesive, with better linkage between related information and more focus on Clear & Concise reporting.
The study notes that business model and strategy reporting provides useful insight into how a company is managed and that best practice in this area is evolving. It also highlights focus areas for the next reporting period such as the application of materiality and improving reporting of key performance indicators; principal risks; and forward-looking information.
The overriding objective of the strategic report is to provide information for shareholders that will enable them to assess how the directors have performed their duty to promote the success of the company. It should reflect the directors’ view of the company and provide context for the related financial statements. In meeting the needs of shareholders, the information in the annual report may also be of interest to other stakeholders. The annual report should not, however, be seen as a replacement for other forms of reporting addressed to other stakeholders.
Melanie McLaren, Executive Director of Codes and Standards, said:
“Two years on from the introduction of the strategic report, investors tell us that companies are providing more relevant, entity-specific and useful information in their annual reports. Our study found that many companies are improving how they communicate and making important information more accessible; but good practice is far from universal.
We believe there is room to go further on the application of materiality so that irrelevant information does not get in the way of the relevant; continuing to improve the linkage of related information to communicate cohesively; and including more forward-looking analysis to promote longer-term sustainability. Making change requires leadership from boards and investors with support from auditors, advisors and regulators.”
The FRC will use the study results to inform the update of its strategic report guidance. It expects to update the guidance to take account of the UK's implementation of the EU's Non- Financial Reporting Directive that BIS (Department for Business, Innovation and Skills) will be consulting on.
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 FRC’s Clear & Concise initiative brings together activities from across the FRC and aims to promote good communication in corporate reporting, ensuring that annual reports provide relevant information for investors. Further information on the Clear & Concise initiative can be found on the FRC website at Clear and Concise and Wider Company Reporting.
3. The FRC published Guidance on the Strategic Report to assist companies with implementing the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013, which have effect in respect of financial years ending on or after 30th September 2013. The Guidance encourages companies to be innovative when drafting their annual reports and reinforces the importance of applying materiality. This includes considering the placement of information to facilitate effective communication.
4. The aims of the FRC’s study on the impact of the strategic report are to:
consider how companies are applying the principles in the FRC’s Guidance on the Strategic Report;
set out observations on best practice reporting;
share the experiences of investors and preparers; and
provide practical assistance to facilitate further improvements.