Whilst the narrative report consists of a Strategic Report and a Director’s Report, the FRC draft guidance (link to FRC website) does not cover the Directors’ Report which must include information on greenhouse gas emissions under the narrative reporting regulations.  The UK Department for Environment, Food & Rural Affairs (DEFRA) has published guidance as to how companies should report their greenhouse gas (GHG) emissions.  

The narrative reporting regulations require all companies (except small companies) to prepare a Strategic Report which will replace the current business review.  The existing guidance on the business review is contained within the Accounting Standard Board’s Reporting Statement: Operating and Financial Review (RS) published in January 2006.         

The non-mandatory guidance, contained within ‘Exposure Draft: Guidance on the Strategic Report’, has been developed in response to a request from the Department for Business, Innovation and Skills (BIS) and is intended “to encourage preparers to consider how the Strategic Report fits within the annual report as a whole and help enhance the quality of narrative reporting more generally”. 

The FRC guidance aims to be: 

principles-based;

shorter and more streamlined than the RS;

mindful of recent developments in narrative reporting best practice; and,

aligned with the requirements in the UK Corporate Governance Code. 

The key points from the Exposure Draft are: 

• It is applicable to all entities preparing Strategic Reports, although the FRC note that the guidance has been written “with quoted companies in mind”
• Only information that is material to shareholders should be included in the Strategic Report. 
• Strategic Reports should include information that:

- is fair, balanced and understandable;

 - is concise;

 - is forward looking

 - is specific to the entity in question; and

 - that links to other information included within the Annual Report.  The FRC provide supplementary guidance which provides suggested examples where information should be linked within the Annual Report. 

• The content of the Strategic Report is driven by the Companies Act 2006 as amended by the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and should include “a description of the entity’s objectives, strategies and business model”.  The ED also highlights that a Strategic Report should include “an explanation of the main trends and factors affecting the entity; a description of its principal risks and uncertainties an analysis using key performance indicators and an analysis of the development and performance of the business”.
• The Strategic Report should include “disclosures around the environment, employees, social issues and diversity”.

The non-mandatory guidance is structured in a way which provides the main principles supported with additional supplementary application guidance and practical examples. 

The FRC will be holding an outreach event to discuss the proposed guidance in October.

Click for (all links to FRC website):

• Press release
• Exposure Draft: Guidance on the Strategic Report
• FRC Staff Guidance Note – Strategic Report Regulations
• Our previous story on the narrative reporting regulations including source of DEFRA guidance for greenhouse gas reporting.