FRC annual review of corporate reporting and developments for 2019/20 annual reports

The Financial Reporting Council (FRC) published its annual review of corporate reporting for 2018/2019 in October 2019. It also published a letter to audit committee chairs and finance directors on key developments and areas of improvement that listed companies should consider when preparing their next annual report and accounts.

Annual review of corporate reporting

Topics covered in the report include:

• Strategic reports – The FRC frequently challenges the adequacy of disclosures around principal risks and uncertainties.
• Non-financial information statements – The Companies Act 2006 requires large "public interest entities" (including listed companies) to set out prescribed non-financial information in their strategic reports. The FRC highlighted that disclosures are often generic and do not identify a company's policies in these areas, the outcomes of those policies or the due diligence carried out in relation to them.
• Dividends – The FRC continues to challenge companies that pay interim dividends in excess of the distributable reserves shown in the last published accounts.

2019/20 annual reports

The FRC's letter to audit committee chairs and finance directors provides guidance on the key developments and areas of improvement that listed companies should consider when preparing their next annual report and accounts.

Key points from the FRC's letter include:

• Section 172 statements – The FRC encourages boards to make specific disclosures, in the context of directors having regard to the matters set out in section 172(1) Companies Act 2006 when performing their section 172 duty, including issues, factors and stakeholders they consider relevant, the main methods used to engage with stakeholders and information on the effect of this on the company's decisions and strategies.
• Environmental disclosures – Companies should be reporting on the direct and indirect effects of climate change on their business. Disclosures should discuss actions the board has taken to account for resilience of the company's business model as well as its risks, uncertainties and viability in the immediate and longer term, in light of climate change.