The FRC indicates that “in general the quality of corporate reporting in the UK is of a high standard”, highlighting that the letter is intended to highlight “where companies might take steps to continue to improve their reporting”.

The year-end advice covers the following key areas:

Clear and concise reporting

The FRC indicates that the annual report should be a “clear and concise communication of a company’s story” as opposed to its compilation just being seen as a compliance exercise.  Boilerplate disclosure should be avoided and only material information to investors should be included.  The FRC highlights that materiality should not be used to conceal errors or achieve a particular presentation.  It cites that its Guidance on the Strategic Report provides the considerations that boards should apply in this area and the importance of the strategic report to investors.

Risk Reporting

The FRC encourages companies to disclose how risks specifically affect them and the mitigating steps to address such risks.  Companies should also avoid long lists of risks and should consider risks relating to data protection in IT systems, cyber risk and risks from climate change within their risk assessment and include them as principal risks if appropriate.

The FRC highlights the changes to the UK Corporate Governance Code around risk and internal control reporting and the requirement to produce a longer-term viability statement for accounting periods beginning on or after 1 October 2014.  The FRC indicate that it expects the longer-term viability assessment to be “significantly longer” than 12 months.

Disclosures

The FRC comments that “effective disclosure remains a topical area and there is an ongoing drive for improvement”.   The FRC letter contains advice around the disclosure of:

• Accounting policies and impact of new standards including that companies should disclose the likely impacts of both IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments in the accounts.
• Alternative performance measures – the disclosure of these should be clear and consistent in their use including explanations and reconciliations of how they relate to GAAP measures.
• Dividends -the FRC highlights that the recently published Financial Reporting Lab (“the Lab”) report will assist companies seeking to improve their disclosures around dividend policy and distributable profits.

The UK GAAP Reduced Disclosure Framework – Financial Reporting Standard (FRS) 101

The FRC reminds companies that FRS 101 Reduced Disclosure Framework is applicable for accounting periods beginning on or after 1 January 2015 and the amendments made in July that provide greater flexibility in primary statement formats and reduce disclosures on first-time adoption of the Standard.

Digital communication

The FRC reminds companies of the Lab report Digital Present which, among other things identified that investors prefer PDF as their preferred format for receiving and reviewing the annual report.

A letter to preparers of smaller listed and AIM quoted company annual reports was published in November 2015. 

The press release and full letter to audit committee chairs are available on the FRC website.