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Narrative reporting areas of focus

The FRC continues to find areas for improvement with regards to the strategic report and the non-financial information statement as indicated in its Annual Review of Corporate Reporting.  Challenges will continue to be raised where these are not a fair, balanced and comprehensive representation of the performance and position of the business and where the non-financial information statement provides cross references to information elsewhere in the annual report which does not contain the required information.

Regulatory focus has highlighted how central the Section 172 statement is to UK reporting. This has been amplified by the COVID-19 pandemic, with investors asking for information that is company-specific and describes how the directors have engaged with stakeholders to understand the relevant issues, and how they have had regard to those issues in their decisions and strategy. In particular, investors are interested in how the directors have balanced the short-term financial threats with the longer-term business resilience.

The FRC indicates, in its year end letter to Audit Committee Chairs and Finance Directors, that many companies are failing to explain how their directors discharged their section 172 duty and in particular the responsibility to have regard to the consequences of decisions in the long term. Additionally whilst companies are reporting on the methods of engagement with stakeholders they are not reflecting how the feedback affected decision making. Some companies are treating the statement as one of compliance. 

The FRC encourages companies to disclosure:

  • The effectiveness and outcomes of their engagement.
  • The oversight that boards have over delegated engagement.
  • How feedback has been used within the decision-making process.
  • Difficult decisions, rather than just focusing on positive engagement.
  • How stakeholders are considered strategically and how such consideration is contributing to companies’ long-term success.
  • Implications of the decisions on both long-term success and on stakeholders themselves.

The FRC has published a set of tips intended to help companies consider what content to include in a Section 172 statement, how to present it and how to facilitate the process of preparing the statement.

2020 sees companies having to comply with the Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018 - the Streamlined Energy and Carbon Reporting Regulations - for the first time.  These Regulations broaden greenhouse gas reporting and energy efficiency disclosure requirements in the directors’ report for quoted companies and extend this reporting requirement to large unquoted companies and LLPs with at least 250 employees or annual turnover greater than £36m and a balance sheet total (gross assets) greater than £18m.  They are effective for financial periods beginning on or after 1 April 2019.  The Department for Business, Energy and Industrial Strategy (BEIS) has published guidance to assist companies to comply.

Below is a comprehensive collection of resources — organised chronologically — on narrative reporting areas of focus.  Click for direct access to specific narrative reporting resources:

Related Resources

Government to set new legislation to take forward its corporate governance reforms

30 Aug 2017

The Government has set out its plans to move forward with its corporate governance reforms following its Green Paper issued last November and also the BEIS Select Committee inquiry into corporate governance which reported in April 2017.

FRC proposes amendments to its Guidance on the Strategic Report

15 Aug 2017

The Financial Reporting Council (FRC) has today published, for consultation, amendments to its ‘Guidance on the Strategic Report’ ("the Guidance").The Guidance remains non-mandatory with a view to encouraging best practice.

FRC publishes a factsheet on the EU Non-Financial Reporting Directive

26 Jul 2017

The Financial Reporting Council (FRC) has today published a factsheet on non-financial reporting that provides an overview of the new regulations implementing the EU Directive on non-financial and diversity information (“EU NFR Directive”).

Need to know — EC adopts guidelines on the EU Non-Financial Reporting Directive

14 Jul 2017

This edition of 'Need to Know' outlines the new European Commission guidelines on the European Union Non-Financial Reporting Directive.

Governance in brief — BEIS Select Committee inquiry report calls for reforms to the UK Corporate Governance Code and greater enforcement

25 May 2017

A next step in the corporate governance reform agenda has been the publication in April 2017 of the BEIS Select Committee inquiry report.

Government Equalities Office launches gender pay gap website as two new transparency requirements come into force

07 Apr 2017

Two new transparency initiatives with reporting requirements outside the annual report are now in force.

BEIS Select Committee publishes its report on corporate governance

06 Apr 2017

The Business, Energy and Industrial Strategy (BEIS) Select Committee has published its report following its inquiry and consultation on corporate governance launched in September 2016, recommending that action must be taken to address a lack of trust in business. Whilst the findings of the Select Committee are not binding on the Government, the proposals laid out in this report may be taken into consideration in any subsequent White Paper on Corporate Governance Reform.

Deloitte comment letter on the FRC's consultation on its corporate reporting research activities

31 Mar 2017

We have published our comment letter on the Financial Reporting Council's (FRC's) Corporate Reporting Research Activities consultation.

The Bruce Column — Recognising the global nature of corporate governance

09 Mar 2017

Corporate governance has grown steadily in influence. But, reports our regular resident commentator, Robert Bruce, pressure is growing for that expanding influence and global importance to be recognised and reinforced more effectively.

Need to know — Non-Financial Reporting Regulations

15 Feb 2017

The government has enacted 'The Companies, Partnerships and Groups (accounts and Non-Financial Reporting) Regulations 2016' (SI 2016/1245) implementing the EU Non-Financial Reporting Directive (Directive 2014/95/EU). This newsletter discusses the new Regulations.

LSEG issues guidance for ESG reporting

10 Feb 2017

The London Stock Exchange Group (LSEG), through its Global Sustainable Investment Centre, has issued guidance setting out recommendations for good practice in Environmental, Social and Governance reporting (ESG).

The Bruce Column — Making the financial implications of climate-related risks clear

01 Feb 2017

The recommendations of the Task Force on Climate-related Financial Disclosures marks a shift in the focus of the reporting of climate change and ensuring that companies explain the risks and opportunities that result. Our resident, regular columnist Robert Bruce explains the implications.

ICAEW/TCFD webinar on TCFD consultation on climate-related financial disclosures

13 Jan 2017

The Institute of Chartered Accountants in England and Wales (ICAEW) and the Task Force on Climate-related Financial Disclosures (TCFD) will be hosting a webinar on the TCFD’s consultation on climate-related financial disclosures on 23 January 2017.

Regulations implementing EU Non-Financial Reporting Directive published

21 Dec 2016

The Department for Business, Energy & Industrial Strategy (BEIS) has published Regulations which implement the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups in the strategic report. The aim of the EU non-financial reporting Directive (EU NFR Directive) is to improve the transparency of certain EU companies as regards non-financial and diversity information.

TCFD launches consultation on climate-related financial disclosures

15 Dec 2016

The Task Force on Climate-related Financial Disclosures (TCFD) set up by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders has published a consultation paper with recommendations for effective disclosure of climate-related financial risks.

Publication of revised gender pay gap reporting regulations

14 Dec 2016

In February this year, the Government published a consultation on mandatory gender pay gap reporting regulations, with a “snapshot” of the data to be taken in April 2017 and a twelve month period to analyse and publish the information. The Government has now published revised gender pay gap reporting regulations which include a number of changes from the earlier draft regulations. All employers with 250 or more relevant employees will be expected to comply with these requirements.

FRRP findings in respect of strategic report and operating segments

08 Dec 2016

The Financial Reporting Council (FRC) has issued a press release of the findings of the Financial Reporting Review Panel (FRRP) stemming from its review of the annual report and accounts of Sports Direct International plc for the year ended 26 April 2015.

BEIS issues Green Paper on Corporate Governance

29 Nov 2016

The Department for Business, Energy & Industrial Strategy (BEIS) has issued a Green Paper seeking views on how to improve the UK corporate governance framework and setting out options for updating the framework and reforming executive remuneration. The consultation closes on 17th February 2017.

Governance in focus: Audit committees and the 2017 reporting season

28 Nov 2016

We expect most audit committee reports to change a lot this year, and to assist you, the Deloitte Academy’s comprehensive year end briefing for audit committees is now available.

FCA amends the DTR to implement the new EU Non-Financial Reporting Directive

21 Nov 2016

The Financial Conduct Authority (FCA) has made amendments to the Disclosure and Transparency Rules (DTR) to implement the new EU Non-Financial Reporting Directive (2014/95/EU) requirement for issuers to disclose their diversity policy in the corporate governance statement. Other aspects of the EU NFR Directive are to be implemented through changes to company law.

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