Corporate reporting standard improving, though quality not as high as it should be

Whilst corporate reporting by large listed companies is generally good, detailed explanations and clarity could still be better, according to the FRC Annual Review of Corporate Reporting.

The quality of narrative reporting has improved following the introduction of the strategic report in 2013. There have been further improvements in the strategic report this year, but it remains an area subject to frequent challenge by the FRC’s Corporate Reporting Review team, particularly where there is insufficient balance or where disclosures are not sufficiently specific or descriptions too vague. The FRC expects companies to provide company specific data rather than resort to generic information.

The FRC’s review of 203 annual and interim report and accounts included pre-informing 60 companies that a certain aspect of their next report and accounts would be subject to review. We are pleased that many took the opportunity of reviewing the relevant disclosures and publishing reports and accounts that included an improvement in the quality of information provided.

The report notes that expectations of corporate reporting are changing. There are increasing calls for more information about how a company has thought about its long-term success, how directors have discharged their Section 172 duties to stakeholders, along with a better explanation of how a company creates value and the extent to which that value is dependent on relationships with stakeholders.

Requirements are also changing with the implementation of new standards for Financial Instruments, Revenue from Contracts with Customers and Leases (IFRS 9, 15 and 16) and the Non-Financial Reporting Directive.

Paul George, FRC’s Executive Director for Corporate Governance and Reporting, said:

Whilst reporting is generally good, there is no room for complacency. Most companies seek to meet members’ needs through fair, balanced and understandable reporting. Our report provides important information to those involved in the preparation of Annual Report and Accounts. It highlights aspects of good practice, common areas for improvement and changing expectations of stakeholders. High quality and transparent reporting are fundamental to building trust and to the long-term success of UK companies and the wider economy

With Brexit on the horizon but a lack of clarity over the outcome, the majority of companies reviewed report continuing uncertainties with more detail than last year. They believe it is still too early to tell about the long-term effects and business impact of leaving the EU. The FRC encourages companies to provide as much detail as possible in their next annual report.

Read the full report here

The Technical Findings can be found here