Advice for preparing 2017/18 annual reports
10 October 2017
The Financial Reporting Council (FRC) has written to companies to highlight changes to reporting requirements and key areas where improvements can be made when preparing annual reports for the 2017/18 reporting season.
The FRC’s letter (PDF) draws companies’ attention to areas of investor focus, including:
The implementation of new accounting standards (IFRS 9, IFRS 15 and IFRS 16) – Companies should be making detailed, quantitative disclosures explaining the expected impact of the new standards on their reporting in the last set of financial statements before the implementation date.
Non-Financial Reporting – New regulations implementing the EU Directive on non-financial and diversity information are effective for financial years beginning on or after 1 January 2017. The FRC is consulting on amendments to the Guidance on the Strategic Report to reflect the new requirements. The proposed amendments to the Guidance also look to improve the effectiveness of section 172 of the Companies Act 2006 and encourage companies to consider the broader drivers of value that contribute to the long-term success of the company.
Viability statements – Further improvements to viability statements remains a priority for investors. The FRC encourages companies to consider developing their viability statements in two stages – first to consider the prospects of the company over a period reflecting its business and investment cycles, and second to state whether they have a reasonable expectation that the company will be able to continue to meet its liabilities as they fall due over the assessment period, drawing attention to any qualifications or assumptions.
Dividends – The FRC encourages further adoption of reporting on the capacity to pay dividends, particularly within the FTSE 250 where progress has been less significant.
Critical judgements and estimates – Investors rely on clear disclosure in this area to understand the impact of management’s accounting policy decisions. Information value can be improved by providing more granular information about a smaller set of judgements and estimates that had a significant impact on results and explaining why certain assets were subject to significant risk of material change.
Defined Benefit pensions – Continued low interest rates and the economics of defined benefit pension arrangements have increased the need for companies to improve the transparency regarding their pension arrangements.
The annual report provides an opportunity to communicate key information to investors about the company’s performance, strategy and future prospects. It should therefore be presented in a user-friendly, clear and concise manner.
Letter: Advice for preparing 2017/18 annual reports (PDF)