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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

Long-awaited narrative reporting regulations laid before UK parliament

13 Jun 2013

The long-awaited narrative reporting regulations issued by the United Kingdom Department for Business, Innovation and Skills (BIS) have now been finalised and laid before the UK parliament for approval. The regulations are the UK government’s response to a project that began in 2010 and are intended to make narrative reporting simpler, clearer and more focussed.

ACCA research shows that investors are concerned about corporate reporting but also think integrated reporting might help

08 Jun 2013

The Association of Chartered Certified Accountants (ACCA) has issued two reports, ‘Understanding investors: directions for corporate reporting’ and ‘Understanding investors: the changing landscape’, which are part of a research series examining what investors want from corporate reporting. The reports reveal that investors have a lower level of confidence when it comes to corporate reports since the global financial crisis. However, they also show that integrated reporting might provide investors with information they are currently looking for elsewhere.

ICAS suggests that positive assurance on management commentary will restore investor confidence

06 May 2013

The Institute of Chartered Accountants of Scotland (ICAS) has published a discussion paper recommending that the auditor should provide an explicit opinion that the management commentary in the annual report is balanced and reasonable and free from spin.

Stay Tuned Online – IFRS and UK GAAP update

29 Nov 2012

The Deloitte London IFRS Centre of Excellence is running a series of hour-long Internet-based financial reporting updates, aimed at helping finance teams keep up to speed with IFRSs and other financial reporting issues.

iGAAP Alert — Draft regulations proposing a new structure for narrative reporting in the UK

24 Oct 2012

This alert from Deloitte (United Kingdom) the draft regulations published by the United Kingdom Department for Business, Innovation and Skills (BIS), which propose restructuring narrative reporting for all UK companies.

The future of narrative reporting - Draft regulations published in the UK

18 Oct 2012

In an effort to make narrative reporting simpler, clearer and more focussed, the UK Department for Business, Innovation and Skills (BIS) has published draft regulations for narrative reporting in the UK.

UK government announces plan for mandatory greenhouse gas emission reporting

20 Jun 2012

The United Kingdom Deputy Prime Minister, Nick Clegg, has announced at the Rio+20 conference that all businesses listed on the Main Market of the London Stock Exchange will have to report their levels of greenhouse gas emissions from the start of the next financial year (April 2013).

FRC concerned about principal risks and uncertainties reporting

02 Feb 2011

The Financial Reporting Review Panel (FRRP) of the UK Financial Reporting Council (FRC) is concerned about how companies are reporting the principal risks and uncertainties facing their business.

Stay Tuned Online – IFRS and UK GAAP update

25 Nov 2010

The Deloitte London IFRS Centre of Excellence is running a series of hour-long Internet-based financial reporting updates, aimed at helping finance teams keep up to speed with IFRSs and other financial reporting issues.

UK survey on narrative reporting

20 Oct 2010

Deloitte (United Kingdom) has released a new publication entitled Swimming in words, the latest annual survey of narrative reporting in the United Kingdom.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.