There have been a few updates recently both from the Government and the FRC relating to corporate reporting. These updates reflect the current state of corporate reporting as well as future proposals to change the standards and companies’ reporting requirements.
Firstly, what’s the current state of corporate reporting?
The FRC have recently published their annual review of corporate reporting, across 263 sets of annual reports and accounts, 59% of which were FTSE 35 companies. If the FRC’s review team think there is or may be a breach of the relevant reporting requirements, it writes to the company to obtain sufficient information to determine whether there is one or ‘an opportunity for improvement’. This is what is known as a ‘substantive question’ and the report of the annual review includes a list of the top ten topics which most frequently resulted in a substantive question.
Last year’s top topic, cash flow statements, has been pushed into third place by the number of substantive questions raised on both the impairment of assets and judgments and estimates in general. The FRC’s report considers whether this is a reflection of the heightened economic uncertainties that many companies may be facing and it wants them to ensure they disclose sufficient information, such as about any assumptions used, sensitivities in the judgments made as well as descriptions of the judgments themselves and not just a list.
The report contains a lot of detail as to what companies should ensure is included in their financial statements and annual report, but in general the theme running across all the topics is that more information needs to be included for the users of the accounts, and companies need to pay attention to consistency within the annual report and accounts.
What about changes impacting on the future of financial reporting?
From an accounting perspective, following on from the consultation about proposed changes to FRS 102 that took place earlier in 2023, the FRC have announced that the revised standard’s publication will be delayed, and any application date will not be before 1 January 2026, instead of 1 January 2025 as originally proposed.
Over 50 consultation responses were received by the FRC, including from MHA, and the announcement has been welcomed by many firms and other interested parties due to the complexity involved in some of the proposals, including relating to revenue recognition and the treatment of leases in the accounts.
Companies should take this extended period to look at the main sections of the FRC’s proposals in the FRED 82 document, particularly considering whether the revenue recognition and leases draft changes are likely to impact on their financial reporting.
Has there been any update from the Government relating to the draft corporate reporting legislation?
The Government had released draft legislation in the summer that proposed measures such as requiring some larger public and private companies (those with at least 750 employees and annual turnover greater than £750m) to prepare an annual resilience statement as well as a three-yearly audit and assurance policy statement.
However, after consultation with businesses, and the financial services industry in particular, the Government has decided to withdraw its plans. This has not been well received by stakeholders including the Institute of Directors, which represents company board members, as well as the UK Shareholders’ Association, but others such as the London Stock Exchange and financial services lobby groups have welcomed the move.
Is anything else on the horizon?
The International Sustainability Standards Board (ISSB) issued its first two standards, IFRS S1 and IFRS S2, in the summer. Although UK has not yet formally adopted the standards, it is widely expected that this will take place in the next year or so. It is assumed that listed companies will be required to apply the standards when they become applicable, but whether that scope will be extended to large companies and other entities is currently unknown.