FRC Annual Review of Corporate Reporting 2023/24

The Financial Reporting Council (FRC) has recently published its Annual Review of Corporate Reporting 2023/24.

The FRC stated “Although some of the inflation-driven economic uncertainties faced by companies in recent years have started to diminish, geopolitical tensions continue, and low growth remains a concern in many economies. Disclosure of such uncertainties and risks remains relevant to a number of our top ten areas of challenge, including impairment and financial instruments. Companies should not lose sight of the need to consider carefully, and disclose clearly, their effect on the company’s results and financial position, as well as the assumptions underpinning the values of assets and liabilities, and forward-looking forecasts”.

The report includes:

• The FRC’s reporting expectations including key disclosure expectations for 2024/25; and
• Reminders on the top ten topics they raised with companies in 2023/24.

• The quality of FTSE 350 reporting was maintained.  However, there is some evidence of the gap between FTSE 350 and other companies widening
• There is a continued need for improvement in relation to impairment and cash flow statements
• Clear and consistent disclosure of uncertainties, risks and assumptions remains an area of focus
• Climate-related reporting becoming more well-established, but the scope is widening
• Good quality reporting does not necessarily require a greater volume of disclosure

The FRC seeks to support companies in complying with the relevant reporting requirements, and providing high-quality information, in their annual reports and accounts. At a glance their headline expectations for the coming reporting season, and how to avoid the most common areas of challenge, are outlined below. In all cases, the FRC expects directors to apply careful judgement in the preparation of the annual reports and accounts.

• Pre-issuance checks: Ensure the company has a sufficiently robust review process in place to identify common technical compliance issues
• Risks and uncertainties: Ensure clear and consistent disclosures about uncertainty and risk are given that are sufficient for users to understand the positions taken in the financial statements
• Narrative reporting: Ensure the strategic report includes a fair, balanced and comprehensive review of the company’s development, position, performance and future prospects
• Take a step back and consider whether the annual report and accounts as a whole
  tells a consistent and coherent story throughout the narrative reporting and financial statements
  • is clear, concise, and understandable
  • includes all material and relevant information
  • includes only material and relevant information

• Sustainability reporting will continue to remain an area of focus (see top ten areas below).  However, the scope of sustainability is widening with similar climate-related disclosures now mandated for a much wider population of UK companies and those with a material EU presence also need to consider the requirements of the Corporate Sustainability Reporting Directive (CSRD).  The process for endorsing International Sustainability Standards Board (ISSB) standards for use in the UK has begun and, where relevant, the FRC encourages companies to familiarise themselves with these.  As we noted in our recent ESG Guide alert, from a Crown Dependencies perspective, there currently exists no mandatory sustainability reporting requirements.  However the Guernsey Financial Services Commission has issued a discussion paper on the future of sustainability reporting which focuses on the ISSB standards, the Jersey Government's consultation on how the jurisdiction wants to position itself with respect to sustainable finance had positive results which could open the door for sustainability reporting requirements, and the Isle of Man Government is expected to release its sustainable finance roadmap later this year.
• Developments in corporate reporting
  • Changes to IFRS accounting standards for the coming reporting season are relatively minor, comprising a small number of amendments to standards
  • New standards and guidance issued by the FRC this year, which are largely effective from 2025, include:
    • targeted revisions to the UK Corporate Governance Code. Provision 29 (effective 2026) now asks boards to make a declaration in relation to the effectiveness of their material internal controls
    • ‘Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review 2024’, which align the accounting for revenue and leases under FRS 102 with IFRS principles
• Quality of corporate reporting. The FRC continues to raise queries on potentially material inconsistencies between disclosures of facts and assumptions in the annual report and accounts.  Therefore, the FRC recommends that preparers take a step back and consider whether the annual report and accounts, taken as a whole, tells a consistent and coherent story. Further, they encourage companies to focus on providing material disclosures that are clear, concise, and company-specific. Importantly, good quality reporting does not necessarily require a greater volume of disclosure 

The FRC’s Annual Review of Corporate Reporting provides detailed findings from their corporate reporting review activities during the year.

Once again impairment of assets is the issue that resulted in the most enquiries with many issues being similar to last year, with four companies restating their parent company financial statements to recognise an impairment of their investments in subsidiaries. Cashflow statements has risen to second place with the FRC noting that “the frequency of questions raised in relation to cash flow statements remains disappointingly high” and the most common issue related to the classification of cash flows within the cash flow statement.

Following the second year of reporting against the TCFD framework by premium-listed companies, we note that this issue has now entered the top ten.  The FRC stated “given the complexities for reporters, we are pleased that we are identifying comparatively few compliance issues in premium-listed companies’ reporting against the TCFD framework. However, some companies continue to find this challenging, and the matter has just moved into our top ten issues this year, with lack of clarity around statements of consistency with the framework being the most common issue identified. There also appears to be scope for more concise disclosure, and we remind companies that material information should not be obscured with the FRC raising questions over companies’ statement of consistency with the framework, opportunities for more concise, company specific disclosure and focus on material information.”

Other areas of challenge include:

• Financial instruments
• Revenue
• Presentation of financial statements
• Strategic report and other Companies Act 2006 matters
• Judgements and estimates
• Income taxes
• Fair value measurement

A link to the full report which includes both key highlights and findings in greater depth can be found here.

If you would like to discuss anything mentioned above or find out more, please do not hesitate to contact us.