FRC publishes year-end advice to preparers in advance of the 2017/18 reporting season

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11 Oct, 2017

The Financial Reporting Council (FRC) has published a letter to Audit Committee Chairs and Finance Directors, in advance of the 2017/18 reporting season, highlighting changes to reporting requirements and aspects of annual reports where the FRC feels that companies can improve.

The year-end advice covers the following key areas:

1. New Accounting Standards

The letter draws the reader’s attention to three new accounting standards - IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases that are soon to be implemented which the FRC indicates “have the potential to have a significant impact on many companies’ results and financial position”.

Given the significance of these standards, the FRC highlights that companies should be disclosing the likely impact of these standards on their financial statements as soon as they can be reliably measured. The FRC expects, in the last set of financial statements before the implementation date, “detailed quantitative disclosure regarding the effects of the new standards” and indicates that it expects companies to have made a “step change” in the quality of those disclosures this year particularly in respect of IFRS 9 and IFRS 15.

Disclosure should be “tailored to the company’s specific circumstances and transactions, and describe any key judgements that management will need to make in complying with the new standards”.

2. Strategic report

In the context of the strategic report having contributed to improvements in overall corporate reporting, the FRC explains that it is one of the areas which is most frequently challenged by the corporate reporting review team (CRR).

Areas that will benefit from additional focus this reporting season include:

Non-financial and performance reporting

  • explanations of relationships and linkages between different pieces of information, in particular ensuring that KPIs which are linked to executive remuneration are explained in sufficient detail;
  • providing clarity on the reasons for changes to KPIs and the impact of this;
  • where relevant, capturing the requirements to provide enhanced disclosures as part of non-financial reporting, in respect of the environment, employees, social matters, respect for human rights and anti-corruption and anti-bribery matters;
  • considering other areas addressed by the FRC in their draft updated Guidance on the Strategic Report, which will be finalised in the first half of 2018:
  • providing better information on how boards have fulfilled their duty under s172 when taking decisions to promote the long term success of the company;
  • consideration of the broader drivers of value that contribute to the long-term success of the company and disclosing sources of value that have not been recognised in the financial statements and how those sources of value are managed, sustained and developed;
  • a description of how companies engage with key stakeholders; and
  • a description of how the allocation of resources will support the achievement of the company’s strategy and impact on stakeholders.

Risk reporting and viability statements

The FRC highlights that further improvements to viability statements remains a priority for investors and the Financial Reporting Lab will be providing a report on risk and viability reporting towards the end of the year to provide practical guidance for companies.

The FRC encourages companies to consider developing their viability statements in two stages – first, to consider and report on the prospects of the company over a period reflecting its business and investment cycles, and second to state whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, drawing attention to any qualifications or assumptions as necessary.

This should be backed up by clear explanations of the analysis performed by the company to underpin the statement.

UK Referendum result

The FRC also calls for companies to revisit their assessment of the risks and ongoing uncertainties regarding the effects of the EU referendum, making appropriate disclosures to reflect their latest analysis and how this has developed over the year. Further, it is recommended that these disclosures are kept under review.

3. Financial statement disclosures

Statement of cash flows

Attention is drawn to the amendments to IAS 7 Statement of Cash Flows which require an explanation of changes in a company’s financing obligations over the period. The FRC indicates that “the new requirements provide an opportunity for companies to improve the clarity of their disclosures” particularly on the use of financing activities such as invoice discounting arrangements.

Companies are “strongly” encouraged to provide details of, and disclosure of reliance upon the use of financing facilities.


The Financial Reporting Lab has recently published an updated report into disclosure of dividend policy and practice by companies. This continues to be an area of investor focus and the FRC encourages further adoption of the recommendations included in the Lab report. In particular the FRC encourages further reporting on the capacity to pay dividends, including the extent to which profits can be distributed by subsidiary companies and the extent of any restrictions.

Critical judgements and estimates

The FRC advises that companies should avoid boilerplate disclosure and encourages more granular disclosure about a smaller set of judgements and estimates that had a significant impact on results.

Accounting policies

The FRC indicates that accounting policy disclosures should be company-specific and raises specific concern regarding the transparency of disclosure regarding “teaser rates” for transfer of credit card debts or mortgage rate offers.

Business combinations

The letter highlights that companies should provide clear disclosure on the impact of contingent and deferred consideration arrangements; in particular clarity of disclosure around estimations and assumptions.

Additionally companies should provide sufficient disclosure where few or no intangible assets, other than goodwill, have been recognised in acquisition accounting.


Companies should “improve the transparency regarding their pension arrangements” including around the nature and risks to which the schemes expose the company to; and explanations of deficit funding arrangements, risk management strategies and scheme assets.

The press release and full letter are available on the FRC website.  Our related Governance in brief publication is available here.

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