FRC's Financial Reporting Lab publishes a follow up report on disclosure of dividend policy and practice
05 Oct, 2017
The Financial Reporting Council’s (FRC's) Financial Reporting Lab (Lab) has published its second report ("the report") into disclosure of dividend policy and practice by companies. The objective of the report is to assess how companies have responded to suggestions for enhanced disclosures included within the Lab's November 2015 report. The Lab indicates that it is "encouraged by the continuing improvements made by companies" and are "particularly pleased" that such companies are responding to investor calls to "add clarity to disclosures around distributable profits/reserves".
The Lab undertook an implementation study to assess the extent to which disclosure practice in those FTSE 350 companies that were part of its previous study had changed (313 companies in total). The implementation study covered the following areas:
- a summary of findings from the previous 'Disclosure of dividends - policy and practice' report (which recommended enhancements to dividend policy and dividend practice disclosures) and highlights from the subsequent implementation study into how practice might have changed since that report;
- how practice has improved based upon the Lab's review of dividend disclosures in 2016 annual reports;
- examples of developing practice
- opportunities for further improvement
Key findings include:
- 132 companies have implemented some of the Lab's disclosure recommendations.
- 58% of FTSE 100 companies now disclose information about distributable profits or distributable reserves, an increase from 40% in 2015. 48% of those companies also disclosed:
- the specific level of distributable profits/reserves of the holding company; or
- the elements of distributable profits/reserves which are not distributable; or
- reference to distributable reserves as sufficient or insignificant.
Findings were less positive for the FTSE 250 companies reviewed with only 30% of companies making such disclosures. The Lab highlights that such companies "might benefit from implementing our original findings".
The report identifies a number of areas where the Lab feels that further improvements can be made including:
- identifying the explicit links between the dividend policy and the potential impact of the company's principal risks and viability;
- enhancing the disclosure on any constraining factors to dividend payments;
- explaining more fully what the policy means in practice; and
- clarifying where profit is generated in the group, how profits might flow to the top of the company and any relevant constraints (current or potential) to that flow.
The press release and full report can be obtained from the FRC's website.
