August 4, 2021 A matter of principles
Corporate reporting provides a vital link between companies and their investors. More than that, good reporting which actively looks to tell the corporate story also shines a light on the organisation; helping to inform potential suppliers, customers, and the wider society.
In recent years, as companies have responded to changing expectations we have seen corporate reporting move from a figures-based approach to one which seeks to provide explanations and insight. Now the Financial Reporting Council (FRC) is looking to move reporting on again; perhaps by requiring companies to deliver a network of clear, concise and accessible interconnected reports which focus on the different interest groups.
With this in mind, in October 2020 the FRC set out a discussion paper. A wide range of responses were received from academics and accountants, investors and others. Those responses have now been summarised in a report entitled: “A Matter of Principles: The Future of Corporate Reporting.”
Whilst respondents were broadly supportive of the FRC’s aim, the responses highlighted a few areas which will need further clarification. For example, there was concern about whether the proposed objective-driven format would deliver the level of audit and assurance required by investors and others. On a positive note, the idea of leveraging technology to better deliver a suite of reports was well received, as was a heightening of the role played by non-financial reporting.
One area that respondents were broadly in agreement with is the need for a revamp of corporate reporting. Apparently responses ranged from acknowledging that reporting needed improvement to a belief that the current methodology was no longer fit for purpose. Interestingly, a number of the areas highlighted are ones which we have commented on in recent times; including the need for concise reporting which accommodates the needs of investors and other stakeholders.
The part played by non-financial reporting was also highlighted in responses. Whilst ESG reporting came top of the list, other areas such as carbon accounting, climate and gender pay also came in for a mention. Supplier information was also highlighted, perhaps reflecting the way in which customers are increasingly looking towards probity across the supply chain.
Following the review, the FRC now intends to take their proposals forward in tandem with the government, other regulators and standard setters. Pending the formal adoption of a new format for corporate reporting, companies may wish to revise and review their current approach. This, with a view to ensuring that reporting is in line with current best practice in delivering clear and concise information which meets stakeholders’ needs.