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FRC publishes Guidance on the Strategic Report

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09 Jun 2014

As a first step in the Financial Reporting Council’s (FRC) new programme of work to promote clear and concise reporting, it has published Guidance on the Strategic Report, a comprehensive publication designed to help companies prepare a strategic report that meets both the requirements of the law and the needs of shareholders "the Guidance").

There is a general recognition that the lack of structure in some annual reports makes it harder for investors (the primary users of the annual report) to draw out the most critical content required to get an insight into the way the business is run and, its strategic direction and its performance in the year. The FRC’s ‘clear and concise programme’ will comprise of a series of initiatives over the coming year and beyond to encourage clearer reporting, focusing on what is material. Other initiatives will include publishing Financial Reporting Lab case studies setting out investor feedback on how well companies have addressed clarity and conciseness and reporting by the Corporate Reporting Review team on reports where it commonly observes ‘clutter’.

The FRC was asked by the Department for Business, Innovation and Skills (BIS) to prepare guidance on the strategic report in the wake of the introduction of the revised legal framework for narrative reporting, which came into force for periods ending on or after 30 September 2013.  An Exposure Draft of guidance to assist directors of listed companies apply such guidance was issued in August 2013 with a comment period ending November 2013.

The Guidance is a best practice statement rather than a mandatory reporting framework.  As well as advice on the structure of the strategic report, the document also sets out the FRC’s vision of the annual report and brings together into one document previously separate elements introduced by the FRC and BIS.

Although aimed mostly at quoted companies, for which the new regulations contain additional requirements, the Guidance is still useful for unquoted companies as a source of best practice recommendations.

The document provides high level guidance on the following topics:

  • The purpose of the strategic report
  • The application of materiality in the context of the strategic report
  • Communication principles for the strategic report

It also discusses in detail the strategic report's content elements, setting out the FRC's view on what information companies should present in order to comply with the legal requirements, and ideas on how this could be presented.

The press release and final Guidance document can be downloaded from the FRC website.

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