FRC comments on BIS consultation on disclosure of non-financial and diversity information

  • FRC comment letter Image

05 Apr, 2016

The Financial Reporting Council (FRC) has published its comment letter on the Department for Business Innovation and Skills’ (BIS’s) consultation on the UK implementation of the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups.

The EU Non-Financial Reporting Directive was approved by the council of the European Union in September 2014. It requires large public-interest companies with more than 500 employees to disclose relevant and material environmental and social information in their annual report. Public interest companies are those with securities admitted to a regulated market in the EU together with credit institutions and insurance undertakings.

Those within scope will also be required to provide information on their diversity policy, covering age, gender, geographical diversity, and educational and professional background. Disclosures shall set out the objectives of the policy, how it has been implemented, and results.

The BIS consultation was published in February 2016.

In its comment letter the FRC indicates that “it is important to retain the key principles in the Strategic Report” when implementing the EU NFR Directive.  The FRC believes that BIS should extend the scope of the requirement wider than set out in the NFR Directive.  The FRC indicates that the scope should include all those currently required to report non-financial information in the Strategic Report (quoted companies) plus other Public Interest Entities as defined in the Accounting Directive.  It comments that “simply applying the scope set out in the non-financial reporting Directive would result in fewer UK companies being required to disclose non-financial information”.  This, the FRC believes, would “result in a loss of transparency for investors” and would “create complexity in the UK narrative reporting framework as it would result in the introduction of a new reporting threshold”.

The FRC “does not support” the introduction of additional mandatory requirements for verification of non-financial information by an independent assurance service provider.  It comments that “to date we have not seen evidence from investors for a need for further assurance over non-financial information or for other parts of the narrative report”. 

Additional comments are provided on de-regulation where the FRC identifies areas where, in its opinion, there is scope to improve narrative reporting “that would result in more relevant information for investors”.  The FRC also encourages BIS “to explore how best to provide companies with flexibility on where they report information”; noting that if non-financial information is not material to investors (if it is it should be in the Strategic Report) but nevertheless required, there might be flexibility to present this information elsewhere. 

The full comment letter is available on the FRC website.

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