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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

ACCA comments on BIS consultation on disclosure of non-financial and diversity information

19 Apr 2016

The Association of Chartered Certified Accountants (ACCA) has published its comment letter on the Department for Business Innovation and Skills’ (BIS’s) consultation on the UK implementation of the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups.

FRC comments on BIS consultation on disclosure of non-financial and diversity information

05 Apr 2016

The Financial Reporting Council (FRC) has published its comment letter on the Department for Business Innovation and Skills’ (BIS’s) consultation on the UK implementation of the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups.

FRC comments on government consultation on mandatory gender pay gap reporting regulations

22 Mar 2016

The Financial Reporting Council (FRC) has published its response to the Government Equalities Office (GEO) consultation on draft regulations that will introduce mandatory gender pay gap reporting for private and voluntary sector employers in England, Scotland and Wales with at least 250 employees.

FRC letter to investors ahead of the 2016 shareholder meeting season

18 Mar 2016

The Financial Reporting Council (FRC) has issued a letter to investors ahead of the 2016 shareholder reporting season highlighting recent changes in reporting and encouraging investors to “engage with companies to provide a steer on what information they believe is relevant and to challenge where reporting falls short of these expectations”.

Governance in brief — Gender pay gap information

17 Mar 2016

Tackling the gender pay gap is a key priority for the current government. The Prime Minister has made clear the government’s ambition to eliminate the gender pay gap in a generation, and the Government Equalities Office has now published draft regulations. Employers with 250 or more relevant employees are being asked to publish detailed gender pay information on their website for each financial year This Governance in brief explores the draft regulations issued. The government intends to lay the regulations before the parliament over the summer.

ICAEW publishes report providing recommendations to improve the quality of corporate reporting

14 Mar 2016

The Institute of Chartered Accountants in England and Wales (ICAEW) has published an 'Audit Insights' publication that “examines seven important areas of annual reporting and makes recommendations that will improve the quality of corporate information provided”. The publication builds upon its publication Corporate Reporting: Seven questions and a debate for 2016 published in December 2015 which offered seven questions for users, preparers and auditors to ask in order to provide better information during the reporting season.

FRC publishes guidance for Audit Committee Chairs on the reporting implications of current economic volatility

08 Mar 2016

The Financial Reporting Council (FRC) has received requests for guidance on how economic uncertainty arising from matters such as volatile asset prices, falling oil prices, low interest rates and the UK's referendum on EU membership should be dealt with in annual reports. In response to these requests, the FRC has published a letter to Audit Committee Chairs highlighting the areas potentially affected.

Need to know — BIS consults on disclosure of non-financial and diversity information

02 Mar 2016

This newsletter discusses the Department for Business Innovation and Skills (BIS) consultation on the UK implementation of the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups.

ICAEW report into establishing materiality when providing assurance over non-financial information

22 Feb 2016

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a report which highlights the key areas that assurance providers should focus on when establishing materiality levels in order to provide assurance over non-financial information.

BIS consults on disclosure of non-financial and diversity information

16 Feb 2016

The Department for Business Innovation and Skills (BIS) has issued a consultation on the UK implementation of the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups (the BIS consultation). 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.

Government Equalities Office consults on mandatory gender pay gap reporting regulations

12 Feb 2016

The Government Equalities Office is today consulting on draft regulations that will introduce mandatory gender pay gap reporting for private and voluntary sector employers in England, Scotland and Wales with at least 250 employees (“the consultation”). The consultation closes on 11 March 2016.

Government Equalities Office publishes report into closing the gender pay gap

10 Feb 2016

The Government Equalities Office has published a report (“the report”) which sets out some of the challenges and opportunities associated with closing the gender pay gap. The publication also highlights specific actions companies are taking to meet this government-led objective.

CDSB publishes review of environmental reporting by FTSE 350 companies

04 Feb 2016

The Climate Disclosure Standards Board (CDSB) has published a review of the annual reports of FTSE 350 companies, looking at how these companies incorporate environmental issues into their strategic reports. The publication identifies reporting trends and showcases examples of best practice from published reports. It also sets out the CDSB's views on how regulators can enhance the enabling environment for disclosure. At the launch of the report, Stephen Haddrill, CEO of the Financial Reporting Council (FRC), gave his perspective on the CDSB's findings.

FRC publishes practical tools to help companies achieve Clear & Concise reporting

17 Dec 2015

The Financial Reporting Council (FRC) has today issued 'Clear & Concise: Developments in Narrative Reporting. This report includes practical tools to help companies achieve Clear & Concise reporting, as well as a study reviewing the influence of the FRC's Guidance on the Strategic Report on the quality of narrative reporting.

FRC publishes year-end considerations for larger listed companies

15 Dec 2015

The Financial Reporting Council (FRC) has today published a letter containing year-end considerations for preparers of larger listed annual reports.

FRC publishes year-end advice to preparers of smaller listed and AIM quoted company annual reports

11 Nov 2015

The Financial Reporting Council (FRC) has today published a letter containing year-end advice to preparers of smaller listed and AIM quoted company annual reports.

FRC publishes Strategy for 2016/19

28 Oct 2015

The Financial Reporting Council (FRC) has published its Strategy for 2016/19. It intends to shift the emphasis of its activities away from the introduction of new requirements and, instead, to focus on embedding the requirements that have been introduced over the past three years to ensure that the intended benefits are secured.

November 2015 meeting of the ICAEW FRDG

27 Oct 2015

The next meeting of the Institute of Chartered Accountants in England and Wales (ICAEW) Financial Reporting Discussion Group (FRDG) will be held on 2 November 2015 in London.

FRC publishes Corporate Reporting Review Annual Report 2015

22 Oct 2015

The Financial Reporting Council (FRC) has today published the Corporate Reporting Review Annual Report 2015 (“the report”) covering reviews conducted by the Conduct Committee into the current state of corporate reporting in the UK. The report covers reviews carried out in the year to 31 March 2015. It highlights that “overall the quality of corporate reporting remains generally good, particularly by large public companies”. The report also indicates that there has been a “good response” to the FRC’s call for enhanced disclosures about complex supplier arrangements.

The Bruce Column — The gradual change that is transforming corporate reporting

20 Oct 2015

Our regular, resident, columnist, Robert Bruce reports on the expert views discussed at a seminar on the latest Deloitte annual survey of the state of UK annual reports.

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