News October 2016 The FRC issues advice to preparers of listed companies

The FRC issues advice to preparers of listed companies

11 October 2016
PN 56/16

The Financial Reporting Council (FRC) has today issued guidance to preparers of annual reports of around 1,200 large and smaller listed companies. The letter highlights key issues and improvements that can be made to annual reports in the 2016 reporting season to help to foster investment in the UK.

The annual report provides an opportunity to communicate key information to investors about the company’s performance, strategy and future prospects. The strategic report should therefore be presented in a user-friendly, clear and concise manner. Furthermore, in an era where, for example, cyber-risk, climate change and Brexit pose economic, social and environmental uncertainty, the FRC encourages companies to consider a broad range of factors when determining principal risks and uncertainties facing the business and performing their analysis for the viability statement.

In particular investors expect:
  • The relationship between IFRS or UK GAAP measures and any alternative performance measures used to be clearly explained.
  • Business model reporting to provide clarity of explanations of how the company makes money and what differentiates it from its peers.
  • A clear link between the business model and the revenue recognition policies to be disclosed.
  • Dividend disclosures to detail how dividend policies operate in practice and how these policies may be impacted by risks and capital management decisions facing the company.
Paul George, FRC’s Executive Director for Corporate Governance and Reporting, said:

"Annual reports are the main source of information for investors who need to understand how the company is performing to allow them to judge the long-term prospects for their investment.
In the light of Brexit, it is imperative to promote strong investment in UK markets, and to do so there must be constructive engagement between investors and companies. The annual report is the main factor in this engagement and by enabling investors to make more informed decisions, the long-term prospects of the company will be enhanced.”

Notes to editors:

1.  The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We are the UK competent authority for audit and 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 enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.