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Narrative Reporting

Collection of narrative reporting news and publications


All companies (except those that qualify as micro-entities from 1 January 2016) are currently required to prepare a directors’ report containing certain basic information. Additionally all companies other than those qualifying for the small companies exemption in the Companies Act 2006 must also include a strategic report, setting out a review of the company's operations.  Most listed companies are required to prepare an annual 'management report' to accompany their financial statements, which in almost every respect matches the requirements of the strategic report and directors’ report. However, some listed companies are required to include additional disclosures in their directors’ reports.  Quoted companies as defined in s385 of the Act are required to include additional information in their strategic report.

Directors’ report

The requirement to produce a directors’ report is contained in s415 of the Companies Act 2006 (“the Act”). The information required to be disclosed is detailed in s416 to s419 of the Act and Schedule 7 of the Accounting Regulations.

  • The report should contain an indication of the likely future developments in the business of the company and its subsidiaries. [Acc Regs Sch. 7: 7 (1)(b)]
  • Companies may wish to include this information in the strategic report rather than the directors’ report. 
  • Where a company chooses to set out in the company's strategic report information required by the Accounting Regulations to be contained in the directors' report it shall state in the directors' report that it has done so and in respect of which information it has done so. [Acc Regs Sch. 7: 7 (1A)].
  • The Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority require most listed companies to prepare an annual 'management report' to accompany their financial statements.  Section 9.8 of the Listing Rules sets out further disclosures required by listed companies, most of which are normally included in the directors’ report.
  • The directors’ report should be approved by the board of directors and signed on behalf of the board by a director or the secretary of the company. [CA 2006 s419(1)]

Greenhouse Gas emissions (GHG)

Quoted companies also need to include information on greenhouse gas emissions in their directors’ report.  The directors' report must contain an annual quantity of emissions, in tonnes of carbon dioxide equivalent, in respect of emissions produced by “activities for which that company is responsible”, including fuel usage and resulting from the purchase of “electricity, heat, steam or cooling” by the company.  Companies are required to disclose the methodology used to calculate these figures including prior year comparative information for the second and subsequent year of reporting.

Auditors are not required to audit these disclosures. However, they are required to read them as part of their reading of the annual report and identify any material inconsistencies with the audited financial statements or information that is apparently incorrect based on, or materially inconsistent with, the knowledge of the Group they acquired in the course of performing the audit.

The UK Department for Environment, Food & Rural Affairs (DEFRA) has published regulations governing how companies should report their greenhouse gas (GHG) emissions in their publication 'Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance' (link to DEFRA guidance).  This publication provides guidance for companies on how to measure and report greenhouse gas emissions and discusses the requirements for carbon reporting in more detail.  Further DEFRA guidance is on greenhouse gas emission factors is provided in their publication '2013 Government GHG Conversion Factors for Company Reporting: Methodology Paper for Emission Factors' (link to DEFRA guidance). 

These greenhouse gas reporting requirements currently apply only to quoted companies. However, it is the Government’s stated intention to review the first two years of GHG emissions reporting by quoted companies in 2015 and to take a further decision in 2016 on whether to extend the reporting requirement to all large companies.

Strategic report

In addition to the directors’ report the directors of a company other than those qualifying for the small companies exemption in the Companies Act 2006 are required to prepare a strategic report for each financial year.  The strategic report must be approved by the board of directors and signed on behalf of the board by a director or the secretary of the company. [CA 2006 s414D(1)].

Requirements for all companies (other than those qualifying for the small companies exemption in the Companies Act 2006)

The strategic report must contain:

[CA 2006 s414C(2)]

  • a fair review of the company or group’s business; and
  • a description of the principal risks and uncertainties facing the company or group.

The Act specifies that the report should be a balanced and comprehensive analysis of:

  • the development and performance of the business of the company or group during the financial year; and
  • the position of the company or group at the end of that year,

consistent with the size and complexity of the business. [CA 2006 s414C(3)]

The report must, to the extent necessary for an understanding of the development, performance or position of the business of the company or group, include:

[CA 2006 s414C(4)]

  • an analysis using financial key performance indicators; and
  • where appropriate, analysis using other key performance indicators, including information relating to environmental matters and employee matters.

Additional requirements for quoted companies

Additional disclosure requirements in the strategic report are imposed on quoted companies.  The strategic reports of such companies must include:

  • the main trends and factors likely to affect the future development, performance and position of the company or group’s business; [s414C(7) (a)]
  • information about:
    • environmental matters (including the impact of the company or group’s business on the environment);
    • the company or group’s employees; and
    • social, community and human rights issues,

including information about any policies of the company or group in relation to those matters and the effectiveness of those policies; [s414C(7) (b)(i)(ii)(iii)]

The strategic report must also include a description of the company or group’s strategy and its business model [s414C(7)(a)(b)].

A breakdown must also be included showing, at the end of the financial year:

  • the number of persons of each sex who were directors of the company;
  • the number of persons of each sex who were senior managers of the company or group (excluding directors of the company); and
  • the number of persons of each sex who were employees of the company or group. [s414C(8)(c)(i)(ii)(iii)]

When preparing a strategic report, directors are encouraged (but not required) to follow the best practice recommendations set out in the FRC’s Guidance on the Strategic Report ('FRC Guidance') the details of which can be found on our FRC project page.  In August 2017, the FRC 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 Financial Reporting Council (FRC), in December 2015, issued 'Clear & Concise: Developments in Narrative Reporting. The report includes practical tools to help companies achieve Clear & Concise reporting, as well as a study reviewing the influence of the FRC's Guidance on the Strategic Report on the quality of narrative reporting. 

EU non-financial reporting directive

Large UK companies will also need to comply with the Directive adopted at an EU level on disclosure of non-financial and diversity information by large companies and groups.  The new Directive, which amends the Accounting Directive (Directive 2013/34/EU), applies to large public-interest entities with more than 500 employees.  Public-interest entities include listed companies as well as some unlisted companies, such as banks, insurance companies and other companies that are so designated by Member States because of their activities, size or number of employees.  Such companies will be required to disclose information in their annual reports on environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters.  The disclosure will need to include a description of the policy pursued by the company related to these matters, the results of these policies and the risks related to these matters and how the company manages those risks.  This Directive complements the required disclosures under the narrative reporting regulations.  For affected companies, the new Directive will extend the level of disclosures required on diversity (for example policies on age, gender, educational and professional background and professional background) and will specifically require reporting on bribery and corruption matters for the first time.  

In January 2016, the European Commission launched a public consultation to collect views from stakeholders on non-binding guidance on the methodology for reporting of non-financial information by certain large companies across all sectors.  

The Department for Business Innovation and Skills (BIS), in February 2016, issued a consultation on the UK implementation of the EU Non-Financial Reporting Directive 2014/95/EU on disclosure of non-financial and diversity information by certain large undertakings and groups.  Responses to this consultation were published by The Department for Business, Energy and Industrial Strategy (BEIS - formerly BIS) in November 2016 and in December 2016, Regulations implementing the Eu non-financial reporting Directive were published.  The Financial Conduct Authority (FCA) has also made amendments to the Disclosure and Transparency Rules (DTR) to implement the new EU Non-Financial Reporting Directive (2014/95/EU) requirement for issuers to disclose their diversity policy in the corporate governance statement.

Correction list for hyphenation

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