Narrative reporting news
Regulatory messages continue to emphasise the need for authentic, balanced and comprehensive disclosures in annual reports to satisfy the needs of investors. To achieve this, information in the annual report should be integrated and connected between the strategic report and the rest of the annual report.
In its Annual Review of Corporate Reporting 2022/23, the Financial Reporting Council (FRC) indicates that aside from climate-related reporting requirements, no substantive challenges were raised in relation to non-financial reporting disclosures such as Streamlined Energy and Carbon Reporting (SECR) and it observed that entities may be becoming more familiar with these newer requirements.
However the FRC continues to raise challenges as to whether the strategic report is fair, balanced and comprehensive, noting that the financial review should address not only financial performance but also significant changes to the financial position of the company (i.e. the balance sheet) and significant movements in the cash flow statement. In the current uncertain economic environment, the FRC particularly expects companies to use the strategic report to articulate clearly the risks and uncertainties the business faces covering economic and other risks such as inflation, together with mitigation strategies and any effects on the strategy and business model. These discussions should be consistent with disclosures made in the financial statements, particularly regarding sensitivities, assumptions and sources of uncertainty. The FRC encourages companies to refer to its Guidance on the Strategic Report and What Makes a Good Annual Report and Accounts publication, which provides principle-based guidance when preparing a strategic report.
The FRC also noted that several companies, including large private companies, did not produce a section 172 statement which is a requirement for all companies except those that qualify as small or medium-sized. A Financial Reporting Lab report sets out what investors are looking for in this area and how companies can improve their reporting to better meet investor needs.
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