EDITORIAL: CORPORATE REPORTING

Last month, the Financial Reporting Council (FRC) issued its Annual Review of Corporate Reporting. Although by definition the companies they are reviewing are some of the largest listed companies, the review’s findings represent the gold standard of corporate reporting. There are lessons to be learned from a wide range of businesses.

This year, the report identified a significant advance in climate-related reporting with the introduction by the Financial Conduct Authority of reporting based on the Taskforce for Climate-related Financial Disclosures (TCFD) recommendations for premium-listed entities on a comply-or-explain basis. However, the scope for improvement remains in some areas of financial reporting, particularly financial instruments and deferred tax. The FRC continues to find errors in cash flow statements, in most cases from desktop reviews. Companies and their auditors should do better in this area.

Disclosure expectations for 2022/2023 were also highlighted in the report. These are all listed in the review which you can read here, but interestingly there appears to be a focus generally on the objectives of disclosures as opposed to merely meeting the specific disclosure requirements of the relevant accounting standards. For example, they say ‘additional information (beyond the standards’ requirements) should be included where needed to understand the impact of particular transactions, events or circumstances’. 

Moreover, they are looking for a ‘clear disclosure of significant management judgments and key assumptions underlying major sources of estimation uncertainty, including information about the sensitivity of reported amounts to changes in assumptions’ and comment that all disclosures should be clear, concise and understandable, omitting immaterial information.

They clearly want to make sure that companies think about who uses the annual reports and why, and endeavour to address those needs rather than ticking regulatory boxes.