FRC’s Financial Reporting Lab issues report on business model reporting

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27 Oct, 2016

The Financial Reporting Council’s (FRC’s) Financial Reporting Lab has published a report on business model reporting. The report highlights the importance of business model information to investors and provides valuable insight for companies on the type of information that they should be including in their business model disclosure. It also incorporates best practice examples.

The report reflects the views of 19 companies, 36 investors from 27 different investment and analyst organisations and 2 retail shareholders, all who contributed to the Lab project. It found that business model information is fundamental to investors’ analysis and understanding of a company and that a lack of good business model disclosure can raise concerns over the quality of company management. The report highlights how investors need more detail on the business model than what is currently provided by the majority of companies.

The Lab report also found:

  • Nearly all investors believe the business model should be presented near the front of the strategic report given that it provides context to the rest of the annual report.
  • Current disclosures lack information that answers important questions, including what the key revenue and profit drivers of the business actually are and what the key assets and liabilities are that support the business model.
  • Most investors believe business models are best communicated through a combination of infographic and detailed narrative. Such narrative should be written in plain, clear, concise and factual language.
  • Where a company operates a number of business models, i.e. one for each division or business line, most investors want to see comprehensive disclosure for each.
  • A good business model should provide the basis for reporting on a company’s strategy and should naturally link to other key sections of the strategic report.

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