On 11 October 2016 the FRC published its advice to audit committee chairs and finance directors of listed companies, highlighting key issues and improvements it considers can be made to annual reports in the 2016 reporting season.
The advice includes:
- A call for annual reports to be more user-friendly and information to be communicated more clearly in a clear and concise manner.
- Encouragement to consider a broad range of factors when determining the principal risks and uncertainties facing the business and performing their analysis for the viability statement, for example cyber security and climate change. Companies should also provide clear disclosure of why the period of assessment selected is appropriate, what qualifications and assumptions were made, and how the underlying analysis was performed.
- In light of the Brexit referendum result, the FRC expects boards to provide increasingly company-specific disclosures with quantification of effects as the economic and political effects of the referendum become more certain.
- The relationship between alternative performance measures (e.g., IFRS or UK GAAP) should be clearly explained.
- Business model reporting should provide clarity of explanations of how the company makes money and what differentiates it from its peers.
- There should be a clear link between the business model and the revenue recognition policies to be disclosed.
- Rationalisation of tax strategies should be clearly described in the report and accounts, including where tax is paid, a consideration on sustainability, and any material risks to which this gives rise.
- Dividend disclosures should detail how dividend policies operate in practice and how these policies may be impacted by risks and capital management decisions facing the company.
- More informative reporting about specific actions taken by audit committees.
The FRC's full guidance can be accessed here:
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.