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Making annual reports better

19 October 2016

The Financial Reporting Council (FRC) has issued advice, in the form of a letter, to preparers of annual reports.

The annual report, explains the FRC, provides an opportunity to communicate key information to investors about the company’s performance, strategy and future prospects. The strategic report should therefore be presented in a user-friendly, clear and concise manner.

In an era where cyber-risk, climate change and Brexit pose economic, social and environmental uncertainty, the FRC wants to encourage companies to consider a broad range of factors when determining principal risks and uncertainties facing the business and performing their analysis for a viability statement.

The letter explains that investors expect the relationship between IFRS or UK GAAP measures and any alternative performance measures used to be clearly explained.

The FRC also believes that business model reporting must provide clarity of explanations of how the company makes money and what differentiates it from its peers.

The letter goes on to call for a clear link between the business model and the revenue recognition policies to be disclosed.

Finally, 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.

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