Uncertainty continues to be a significant factor in industries and economies around the world, whether generated by the effects of climate change, the ongoing COVID-19 pandemic, or other factors. This uncertainty can affect corporate reporting in a number of ways, generating focus from investors and regulatory scrutiny from the Financial Reporting Council (FRC), and influencing developments in reporting requirements. The FRC’s Annual Review of Corporate Reporting 2020/21 and ESMA’s Common Enforcement Priorities provide guidance on appropriate reporting and meeting investor expectations and highlight areas of regulatory scrutiny that reporters of all sizes should focus on in the coming reporting season. 

The FRC notes improvements in the reporting of the effects of climate change, but highlights that there is still significant scope for enhanced disclosure.  For periods commencing on or after 1 January 2021, premium-listed commercial companies are required by the Listing Rules to include a statement in their annual financial report which sets out whether their disclosures are consistent with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, and to explain if they are not. The FRC, ESMA and the Financial Conduct Authority have all stated that they will be reviewing compliance with this new requirement in the 2021/22 reporting season.  Going forwards these requirements will be extended to include standard listed companies, asset managers, life insurers and FCA-regulated pension providers for periods commencing on or after 1 January 2022.

The FRC continues to raise queries relating to regular focus areas, in particular the use of ‘non-GAAP’, or alternative performance measures (APMs), disclosures about judgements and estimates, and the statement of cash flows.  There also continues to be focus on more recent IFRS Standards, with queries raised around the application of IFRS 15 Revenue from Contracts with Customers, IFRS 16 Leases, and IFRS 9 Financial Instruments.  Companies’ narrative reporting disclosures can also expect to be challenged with improvements expected in Streamlined Energy and Carbon Reporting (SECR) and Section 172 reporting.   Additionally whilst corporate reporting in the face of the ongoing effects of the COVID-19 pandemic has not declined, both the FRC and ESMA stress the need for continued high quality reporting with a focus on the disclosure of judgements and estimation uncertainties particularly regarding matters such as going concern, liquidity and impairment of assets.

This year sees the introduction of the requirement for UK entities listed on the Main Market to prepare their annual financial reports in compliance with the European Single Electronic Format (ESEF). This requirement, effective for periods commencing on or after 1 January 2021, has been introduced by the FCA in order to facilitate accessibility, analysis and comparability of annual financial reports and involves preparing the annual report in an XHTML web browser format.

Turning to the financial statements, amendments to both UK GAAP and IFRS Standards have been relatively minor. However, for those entities with financial instruments, the ‘phase 2’ amendments as a result of IBOR reform to both UK GAAP and IFRS Standards are likely to be significant. Additionally, lessees and lessors that have received temporary rent concessions as a direct consequence of COVID-19 should consider the extension to the reliefs offered under both frameworks.

Looking forwards to 2022, the FRC has confirmed its areas of focus, with thematic reviews planned for TCFD and climate-related reporting, business combinations, earnings per share, deferred taxes, discount rates, and judgements and estimates.

Our Closing Out 2021 publication covers all these topics and more, providing an invaluable guide to the issues affecting today’s corporate reporting landscape.