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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

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.

The Bruce Column — Paul Druckman looks back over five years of achievement

18 Nov 2016

Five years can bring about an immense amount of change. Paul Druckman has just stepped down as chief executive of the International Integrated Reporting Council.

Robert Bruce interviews — Paul Druckman looks back over five years of achievement

18 Nov 2016

Five years can bring about an immense amount of change. Paul Druckman has just stepped down as chief executive of the International Integrated Reporting Council. And in a video interview with Robert Bruce he has reflected on what has been achieved in that time under his leadership.

Stay Tuned Online - IFRS and UK GAAP update October 2016

18 Nov 2016

The following topics are covered in the October 2016 webcast:1 - Closing Out 2016, 2 - A clear vision: Annual report insights 2016, 3 - The Financial Reporting Council’s (FRC's) thematic review of tax, 4 - IFRS developments and reminders and 5 - Round up of other corporate reporting news

Report published into the ethnic diversity of UK Boards

15 Nov 2016

A report has been published by Sir John Parker that considers the ethnic diversity of UK Boards (“the report”). The findings of the report have been published “for the purpose of consultation, and debate amongst business leaders, regulators and lawmakers”.

BEIS responds to feedback from its consultation on implementation of the EU non-financial reporting directive

10 Nov 2016

The Department for Business, Energy and Industrial Strategy (BEIS) has published its response to feedback received in response to its consultation on the implementation of the EU non-financial reporting directive in the UK.

Governance in brief — FRC’s CRR report calls for more tax and stakeholder reporting as well as better business model, risk and judgement disclosures

03 Nov 2016

The Financial Reporting Council (FRC) has issued its 2015/16 Corporate Reporting Reporting (CRR) annual report, which reflects the political agenda and the social mood by encouraging business to enhance tax disclosures and include disclosures on wider stakeholder considerations around how the directors have discharged their duties. This edition of Governance in brief explores the findings in the CRR annual report, the recommendations in the FRC’s year-end advice letter to preparers and the aspects of financial statements and broader corporate reporting that the FRC is looking to companies to focus on in the coming year.

FRC publishes findings on the quality of corporate reporting in 2015/2016

21 Oct 2016

The Financial Reporting Council (FRC) has published its Annual Review of Corporate Reporting 2015/2016, which provides the FRC's assessment of corporate reporting in the UK based on evidence from a variety of sources, including the work of the FRC's own Corporate Reporting Review (CRR) team.

FRC publishes year-end advice for smaller and larger listed companies

11 Oct 2016

The Financial Reporting Council (FRC) has today published a letter to Audit Committee Chairs and Finance Directors containing “the FRC’s perspective on aspects of annual reports that companies should aim to improve” in the coming 2016 reporting season and highlighting recent changes to UK reporting requirements.

CIPFA/LASAAC consults on new Code of Practice on Local Authority Accounting

18 Jul 2016

The Chartered Institute of Public Finance and Accountancy (CIPFA) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) are seeking comments on an exposure draft of the 2017/18 Code of Practice on Local Authority Accounting in the UK (the Code) which would apply to accounting periods beginning on or after 1 April 2017 (“the exposure draft”).

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