June 19, 2014 Clear and concise reporting
The Financial Reporting Council (FRC) has announced the first in a series of initiatives which are designed to help investors to more clearly assess a company’s performance, position and prospects. The initiatives which will be delivered over the next few years all aim to improve clear and concise reporting and to remove the “clutter” which can obscure the true picture.
The Strategic Report may be a comparatively new legislative addition to the corporate reporting suite but, according to the FRC, it has already “made a positive impact, with a number of companies focussing on clarity of communication rather than a compliance-driven checklist approach to reporting.” However the FRC have identified a number of areas in which the Strategic Report could be improved and this first initiative aims to provide guidance on the Strategic Report alongside clarification of a number of legal points arising from the legislation.
The Strategic Report guidance issued by the FRC covers:
- An overview of the purpose of the Annual Report including guidance on the considerations which directors should give to the way in which information is laid out in the report.
- An overview of the purpose of and legislative requirements for the Strategic Report. This includes a consideration of the materiality of information provided, the interaction between the Strategic Report and the Companies Act and the importance of considering differing shareholder groups.
- The importance of adhering to the “fair, balanced and understandable” communication principles when drawing up the report. These include the use of plain English, aiming to be ‘comprehensive but concise’, being entity specific and having a forward-looking orientation.
- A look at the content requirements for the Strategic Report under three broad headings of Strategic Management, Business Environment and Business Performance.
The guidance also covers ancillary information such as the provision of supplementary material and electronic publication of reports.
In issuing this guidance the FRC aims to encourage companies to move away from a reporting style which seeks to cover every option and therefore can obscure the true picture and towards a more investor-friendly style. The guidance, which is issued on a best practice basis, is aimed at quoted companies but is appropriate for all entities which seek to issue strategic reports. In releasing the guidance FRC Chief Executive, Stephen Haddrill, said “investors still express concern that the key messages about the business are buried in too much verbiage of little value or are obscured by boilerplate. The programme we launch today is designed to tackle this persistent problem and promote clear and concise reporting.”