FRC’s Annual Review of Corporate Reporting: Key Insights for Company Secretaries

The Financial Reporting Council (FRC) has recently published its annual review of corporate reporting, offering a positive overview of the improvements made by FTSE350 companies.

This report highlights both key achievements and areas requiring further attention as we enter the upcoming reporting season, when the whole process feels like a bit of a juggling act!

To help with this, I have outlined my critical takeaways that will help guide both strategic planning and compliance efforts for Company Secretaries and Reporting teams as below.

The Challenge of Climate-Related Reporting

While climate-related disclosures under the Taskforce for Climate-related Financial Disclosures (TCFD) framework have become more common, there is still room for improvement.

The FRC found relatively few compliance issues among premium-listed companies, but some firms still struggle with transparency, particularly around statements of consistency with the TCFD framework.

Key reminders relating to Sustainability disclosures for Company Secretaries:

• Climate-related disclosures are now mandatory for a wider range of companies under the Companies Act 2006.
• UK companies with significant EU operations should also consider the Corporate Sustainability Reporting Directive (CSRD).
  
• Familiarisation with the emerging International Sustainability Standards Board (ISSB) standards is crucial, as the endorsement process for UK application is already underway.

Financial Reporting: Impairment and Cash Flow Statements Under Scrutiny

The FRC expressed concerns over impairment and cash flow statements, especially among companies outside the FTSE350.

These issues can affect profit distribution and are expected to remain a focus in the upcoming reporting season.

It’s important to ensure that financial teams are prepared to meet expectations in these critical areas.

Streamlined Reporting: Quality Over Quantity

One of the FRC’s key messages this year is that more disclosure does not always mean better reporting.

Stakeholders prefer concise, clear, and relevant information.

Company Secretaries and Reporting Teams should continue to ensure that reports are not only compliant but also accessible and insightful.

Minimal Changes to Corporate Reporting Standards

There are few significant changes to International Financial Reporting Standards (IFRS) for the coming reporting season. However, Company Secretaries should be aware of the following updates expected in future periods:

• UK Corporate Governance Code (Provision 29): By 2026, boards will need to declare the effectiveness of their material internal controls. This is important disclosure for CoSec to be aware of to ensure compliance.
• FRS 102 Amendments: Changes to revenue and lease accounting will align FRS 102 with IFRS principles, effective 2025. This is important disclosure for CFO and Financial Teams to be aware of to understand the impact.

Compliance Essentials: Judgement and Balance

This is just a reminder for us all!

The UK’s principles-based financial reporting framework demands careful judgement. Company Secretaries must ensure that annual reports and accounts meet several overarching requirements:

• The financial statements must present a true and fair view [s393 Companies Act 2006; IAS 17.15]
• The annual report and accounts, taken as a whole, should be fair, balanced and understandable [UK Corporate Governance Code Principle N, where applicable]
• The strategic report must be fair, balanced and comprehensive [s414C Companies Act 2006]
• Specific disclosures required by accounting standards need not be provided if the information resulting from that disclosure is not material [IAS 1.31].
• Companies are required to consider whether to provide additional disclosures if the specific requirements of IFRS accounting standards are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position, financial performance and cash flows [IAS 1.17(c), 31 and 112(c)]

The FRC does not expect companies to go beyond these requirements or provide immaterial information.

Company Secretaries should focus on ensuring that narrative reports are consistent and reflect a clear company-specific perspective. Here is a summary of the expectations:

· Narrative reporting

Keep reports material. Usual standards of being fair balanced and comprehensive review of the company’s development, position, performance and future prospects.

· Risks and uncertainties

Ensure clear and consistent disclosures about uncertainty and risk are given that are sufficient for users to understand the positions taken in the financial statements.

2024/25 Reporting Season: Common-Sense Guidance

The FRC continues to recommend that Preparers take a step back and consider whether the annual report and accounts, taken as a whole, tells a consistent and coherent story.

They also encourage companies to focus on providing material disclosures that are clear, concise, and company-specific.

Importantly, good quality reporting does not necessarily require a greater volume of disclosure.

I might add that any good quality reporting also needs to tell the brand story and illustrate a strategy in action.

Focus should be on inspiring a good sense of trust for stakeholders in understanding the organisations’ ability to not only achieve growth but also add value and impact against its purpose.

But let’s keep it concise!!

Need guidance for the upcoming reporting season?
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