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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

EC review of the NFRD postponed by three months

27 May 2020

In February 2020, the European Commission (EC) launched an initiative to review the European Non-Financial Reporting Directive (NFRD). The COVID-19 pandemic has now led to changes in the timetable.

FRC updates its COVID-19 guidance for companies to include reporting of exceptional items and APMs

20 May 2020

The Financial Reporting Council (FRC) has updated its COVID-19 guidance for companies to explain how they should report exceptional items and alternative performance measures (APMs) in their reports and accounts in light of COVID-19.

FRC issues editorial updates to the 2018 Guidance on the Strategic Report

14 May 2020

The Financial Reporting Council (FRC) has issued editorial updates to Appendix II and Appendix III of its 2018 Guidance on the Strategic Report .

FRC updates its COVID-19 guidance for companies to include going concern considerations for interim reporters

14 May 2020

The Financial Reporting Council (FRC) has updated its COVID-19 guidance for companies to include considerations for those preparing interim reports.

Responses to Accountancy Europe cogito paper show strong support for a global solution to non-financial reporting

30 Apr 2020

In December 2019, Accountancy Europe published a paper describing and calling for a global solution to interconnected standard-setting that can meet the need for reliable, consistent information in non-financial reporting that is interconnected with financial reporting. The comment deadline for the paper has now ended and the responses received show strong support for a global approach to standard setting in this area.

The new section 172(1) statement – observations from first reporters

29 Apr 2020

This survey presents a picture of how the first wave of December year-end reporters have approached the new section 172(1) statement. It examines emerging practices and provides some example disclosures.

EC launches consultation on renewed sustainable finance strategy

09 Apr 2020

In the context of the European Green Deal and building on the 2018 Action Plan on financing sustainable growth, the European Commission (EC) has launched a consultation on its renewed sustainable finance strategy. Despite contrary findings of a recent study commissioned by the EC, the wording and the options for answering one of the questions of the consultation document seem to suggest that IFRSs may hamper sustainable finance.

EC consultation on the revision of the NFRD — Deadline extended

03 Apr 2020

In February 2020, the European Commission launched an initiative to review the European Non-Financial Reporting Directive. The deadline for comments has now been extended to 11 June 2020.

ICAEW webinar on SECR reporting

02 Apr 2020

The Institute of Chartered Accountants in England and Wales (ICAEW) will be hosting a webinar providing an overview of the Streamlined Energy and Carbon Reporting (SECR) regulations.

FRC, FCA and PRA issue Covid-19 guidance for companies and auditors

26 Mar 2020

The Financial Conduct Authority (FCA), Financial Reporting Council (FRC) and Prudential Regulation Authority (PRA) have published a joint statement relating to the impact of Covid-19 on financial reporting.

European Lab seeks members for its second task force

13 Mar 2020

The European Financial Reporting Advisory Group (EFRAG) has published a call for candidates for members of a new project task force on reporting of non-financial risks and opportunities and linkage to the business model.

FRC issues advice to companies and auditors on coronavirus risk disclosures

18 Feb 2020

The Financial Reporting Council (FRC) has today published guidance for companies on disclosure of risks and other reporting consequences arising from the emergence and spread of Coronavirus (COVID-19).

Executive Vice President of the European Commission calls for European non-financial reporting standards

28 Jan 2020

Speaking at a conference on implementing the European Green Deal today, Executive Vice President Valdis Dombrovskis announced that the European Commission will support a process to develop European non-financial reporting standards.

ICAEW UK GAAP update webinar

22 Jan 2020

The Institute of Chartered Accountants in England and Wales (ICAEW) will be hosting a webinar outlining latest developments and implementation issues in UK GAAP and also recent changes to reporting regulations.

Stay Tuned Online - IFRS and UK GAAP Update December 2019

13 Jan 2020

Stay Tuned Online is an online financial reporting update, aimed at helping finance teams keep up to speed with IFRS and UK financial reporting issues. Each update lasts about an hour.

FRC publishes a Streamlined Energy & Carbon Reporting (SECR) Taxonomy

19 Dec 2019

The Financial Reporting Council (FRC) has published a taxonomy for Streamlined Energy and Carbon Reporting (SECR). The new requirements come into force on 1 April 2019 and apply to all large companies and LLPs, as well as to all listed companies.

Sir Donald Brydon issues his report on the quality and effectiveness of audit

19 Dec 2019

Sir Donald Brydon has published his final report setting out his personal views on the quality and effectiveness of audit to the Secretary of State.

Accounting Roundup - Closing Out 2019

10 Dec 2019

Closing Out 2019 discusses the significant corporate reporting issues relevant to 31 December 2019 annual reports, covering areas of regulatory focus identified in the FRC’s Annual Review of Corporate Reporting 2018/2019 and the ESMA’s common enforcement priorities for issuers in the European Union, together with other developments in reporting standards and areas of investor interest.

Governance in focus — On the board agenda 2020

05 Dec 2019

As 2019 draws to a close, our annual review of board topics will stimulate your thinking and help prepare you for the year ahead. After pieces on the economic outlook, the Nine Big Shifts and the “Social Enterprise”, we pull together, in one place, a series of articles reviewing many topics on the board agenda across four key themes – responsible business, risk & internal controls, remuneration and year-end reporting & assurance. Our annual review is, once again, a full read as there is much to consider.

ICAEW and WBCSD publish 'A Buyers guide to assurance on non-financial information'

21 Nov 2019

The Audit and Assurance Faculty of the Institute of Chartered Accountants in England and Wales (ICAEW) and the World Business Council for Sustainable Development (WBCSD) have jointly published ‘A Buyer’s guide to assurance on non-financial information’. The guide addresses the questions of what is assurance? How does it work? And how is it beneficial to users of nonfinancial information?

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