Financial Reporting Lab publishes insight report on ‘Clear and Concise’ reporting

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12 Aug, 2014

The Financial Reporting Lab (“the Lab”) has today published an insight report (“the insight report”) highlighting the progress that companies made during the 2013 year-end reporting cycle towards clearer and more concise reporting.

The insight report; ‘Towards Clear & Concise Reporting’ is part of the Financial Reporting Council’s (FRC’s) programme  of work to support clear and concise reporting; a project which began with the publication of ‘Guidance on the Strategic Report’, in June 2014.

The observations of the Lab in the insight report are based on a review of the annual reports of FTSE 350 companies having year ends between 30 September and 31 December 2013, released between 15 October 2013 and 20 March 2014.  In total 41 annual reports were reviewed.  The Lab highlights that “the aim of the review was to identify those companies which had made a significant effort in making their annual reports clearer and more concise”. 

Based on the results of this review and its observations of clearer and more concise reporting, the Lab encourages companies to think about the following in relation to their annual reports:

  • The communication channels used and how to match information to users’ needs.  The Lab identified instances where companies had revised which information is presented in which communication channel which allowed the targeting of information to meet specific user needs.
  • How to focus content on what is most important to investors.  Examples provided in the insight report include reporting on actions rather than just describing a process (for example risk reporting and how those risks are being managed with less focus on risk process and policy); focusing the level of sustainability reporting only to that which is material to the business and is required by legislation with more detailed information in an appendix or a separate report; removing standing information; removing five year summaries from the annual report as there is no UK requirement to include such information and reducing the actual detail presented in the financial review.
  • Removing immaterial disclosures.  The Lab comments that “some companies made progress in using materiality to aid clarity and conciseness”.  Examples provided in the insight report include removing prior year disclosures that are no longer required in the current year (such as those related to the financial crisis which may no longer be relevant); removing elements in the annual report that are no longer required (such as creditor payment policies and practice and charitable donations) and removing immaterial notes to the financial statements.
  • Using cross-referencing and layout to improve clarity.  The Lab comments that “annual reports that are logically laid out and present information with the minimum of duplication are user friendly”.  The insight report identifies that some companies have reduced the length of the annual report simply by altering the layout.  Examples include putting comparative data side by side as opposed to in separate tables and using white space on the contents pages to display information such as key performance indicators.  The insight report also indicates that some companies used cross referencing and signposting of information within the annual report which improved clarity.  

The insight report contains a section to provide “practical steps” that companies can adopt when seeking to implement processes to improve their annual reports to make them clearer and more concise.  The insight report identifies four steps reflecting the experiences of companies who have undergone corporate reporting change; plan the change; manage the process; do what’s needed and evaluate the changes.  Each of these steps is described in more detail the insight report and case studies are provided of two companies who have managed such a change process.

The Lab highlights that the insight report is guidance only and emphasises that “companies should consider whether the steps identified are suitable to their own circumstances”.

The press release and the full insight report are available from the FRC website. A slide deck summarising the key findings of the report is also available to download from the FRC website.

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