October 25, 2017 Improving corporate reporting
How clear and concise are your corporate reports? More importantly how closely do they align with the nine characteristics of good corporate reporting as outlined by the Financial Reporting Council (FRC)?
In compiling their list the FRC has taken areas such as complying with fundamental corporate law and accounting standards as a given. The other nine characteristics have been outlined in the annual review of corporate reporting which the FRC issued in October 2017. Some of these such as the need to be clear, to be concise and to provide a true and fair picture appear as regular themes in corporate reporting updates from the FRC. Other characteristics are perhaps less familiar at first sight and yet still form the backbone of good reporting.
For example, number one on the list is the requirement to deliver a single story, ensuring that the narrative ties in with the figures shown within the accounting section of the report and that significant events are clearly explained. This may be obvious but the fact that the FRC feel they need to highlight the need for clarity and consistency tells its own story. Equally interesting is number three on the list which the FRC has entitled ‘what worries the board’. Risk management is a key element of a director’s duties but in highlighting risk in this way the FRC has drawn notice to the importance of moving away from corporate reports being a simple what has happened narrative and towards providing a full picture of the current and expected future direction of the company.
Corporate reporting never stands still, evolving in line with changing legislation and the expectations of investors. This review in particular draws attention to the growing importance of highlighting value creation and the extent to which value is dependent on relationships with stakeholders. The FRC has also noted that in too many instances strategic reports contain generic rather than company specific information and this is an area which the organisation has highlighted as requiring improvement.
Nevertheless, despite the changing nature of corporate reporting, overall the FRC comments that the standard of corporate reporting is improving with most companies seeking “to meet members’ needs through fair, balanced and understandable reporting.” As Paul George, FRC’s Executive Director for Corporate Governance and Reporting comments “High quality and transparent reporting are fundamental to building trust and to the long-term success of UK companies and the wider economy.”