FRC review of corporate reporting for 2020/21

The FRC has published its annual review of corporate reporting for 2020/2021.

The FRC notes that the Covid-19 pandemic did not lead to a decline in reporting quality and that there is evidence of improvement in both the content of the strategic report and the use of alternative performance measures (see our blog post here). However, there remain multiple areas for improvement, with many FRC queries to companies resulting from apparent inconsistencies between the financial statements and other elements of the annual report.

Key findings from the report include:

• Section 172 statement and stakeholder engagement – Where section 172 statements and stakeholder engagement disclosures are combined, companies must take care to ensure that all requirements are met (for example, covering all six aspects of the section 172 duty). Companies should be aware that the FRC monitors media coverage and expects that any stakeholder engagement covered in the press will be reflected in formal corporate reporting.
• Cash flow statements – The FRC remains concerned about the number of cash flow statement errors it has identified in its reviews, often purely from critical analysis of line items appearing on the face of the balance sheet.
• 10 hot topics – The 10 topics most frequently raised by the FRC in the context of financial statements include issues relating to judgements and estimates; revenue recognition policies; impairment of assets; alternative performance measures; the use of financial instruments; provisions and contingencies; leases; and income taxes.

The FRC says that its monitoring in the coming year will include a focus on climate-related risks and disclosures, as well as judgements and uncertainties in light of the continued impact of Covid-19.