The UK Financial Reporting Council (FRC) Annual Review of Corporate Reporting has found that the standard remains good in general but the quality of corporate reporting could be higher.
The report found improvements to strategic reports, for example alternate payment measures (APMs) but the financial statement findings are consistent with last year as further improvement is needed in the clarity and completeness of explanations provided by companies. The most raised issues were judgements and estimates, the strategic report, and accounting policies.
There are concerns regarding a lack of trust in big business and that companies need to take account of wider stakeholder interests. The review stated that companies should pay particular attention to four areas;
- explaining and quantifying judgements and estimates,
- providing a balanced assessment of performance and prospects that covers both positive and negative aspects
- ensuring the links between the financial statements and discussions of strategy, performance including Key Performance Indicators (“KPIs”), financial position and cash flows, including the use of APMs, are clear
- providing company-specific information to understand the business, its performance and prospects.
The FRC is considering whether assessments of the quality of disclosures could be incorporated into their monitoring business where there are concerns or apparent inconsistencies. Regarding how the annual report increases in size, the report suggests that regulators such as the FRC should ensure that the benefits of any new requirements justify any downside such as additional length.
The report was assessed primarily through 20 FRC cases opened in the year to 31 March 2017.
Report can be found here.