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FRC proposes amendments to its Guidance on the Strategic Report

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15 Aug 2017

The Financial Reporting Council (FRC) has today published, for consultation, amendments to its ‘Guidance on the Strategic Report’ ("the Guidance").The Guidance remains non-mandatory with a view to encouraging best practice.

The FRC’s Guidance on the Strategic Report was first published in June 2014.  Since the publication of the guidance there has been an increasing focus on the need for businesses to consider their impact on society and report on the broader matters that may impact the sustainability of the business over the longer term.

The FRC is updating its Guidance to:

Reflect changes arising from the UK implementation of the non-financial reporting Directive

The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016 (SI 2016/1245) ("the Regulations"), which implement the requirements of the EU non-financial reporting Directive in the UK, amend the strategic report requirements as set out in the Companies Act 2006.  The Regulations apply to the financial years of companies and qualifying partnerships, within scope of the Regulations, beginning on or after 1 January 2017.  The new Regulations only apply to certain large entities with more than 500 employees and complement many of the pre-existing disclosure requirements in the strategic report.

The FRC is amending its guidance to reflect the changes brought about by the Regulations.  The FRC, in drafting the amendments, has “taken a pragmatic approach to assist entities with the implementation of the new Regulations in the simplest manner”.  It states that the aim is “to ensure that the strategic report and the annual report as a whole remain cohesive, incorporating financial and non-financial information.  The draft amendments enhance the pre-existing strategic report requirements, integrating additional content from the new Regulations rather than duplicating.

Enhance the linkage between Section 172 and the purpose of the strategic report

The FRC has also proposed changes to enhance the linkage between section 172 of the Companies Act 2006 and the purpose of the strategic report. The purpose of the strategic report as set out in the Companies Act 2006 is to inform members of the company and to help them assess how the directors have performed their duty under Section 172.

Section 172 imposes a duty on directors to ‘promote the success of the company’ and the FRC’s amendments are intended to place a greater focus on how directors’ are fulfilling their duty in this area through narrative in the strategic report. 

Targeted improvements

In addition to the above changes, amendments are also being made to make targeted improvements to certain areas of the guidance to reflect key developments in corporate reporting such as the European Securities and Markets Authority (ESMA) Guidelines on Alternative Performance Measures.

Comments are requested by 24 October 2017.

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