Navigating the Corporate Reporting Landscape: Insights

Key issues: Unpacking FRC's findings

FRC's review identified several recurring areas where companies can enhance their reporting, focusing on clarity, consistency, and meaningful disclosures:

• Impairment of assets:
  The FRC Review noted that impairment of assets remains a significant concern, with recurring issues from the previous review cycle.
  Inconsistencies between the key inputs/assumptions used in impairment tests and information reported elsewhere in the annual report, along with insufficient disclosures around impairment methods, sensitivities and the recoverability of investments in subsidiaries were the key issues identified by the FRC.
  In particular, a number of restatements were made to parent company financial statements to recognise an impairment of their investments in subsidiaries following FRC’s enquiries.

• Cash Flow Statement:
  Often overlooked until the later stage of the corporate reporting process, the cash flow statement provides critical insights into a company's ability to generate cash and its uses of cash.
  The FRC Review noted that the cash flow statement remains one of the most common reasons for companies restating their financial statements, with the number of companies restating their cash flow statements more than doubling compared to the previous review cycle.
  The FRC encourages companies to ensure appropriate classification of material cash flows, consistency with information reported elsewhere in the annual report and amounts netted off only when permitted.

• Presentation of Financial Statements:
  Financial statements should be presented in a way that is easily understood by users and in accordance with the requirements.
  The FRC emphasised the need for clear presentation and disclosures, with a focus on material information. Examples identified by the FRC include the presentation of material impairment losses on the face of the income statement, gross versus net presentation of income and expense items and the classification of amounts due from subsidiaries as current or non-current in the balance sheet.

Actions for companies: Proactive steps for your consideration

You can take proactive steps to enhance your corporate reporting and align with the FRC's recommendations by:

• Implementing a robust pre-issuance review process for the financial statements. This review should go beyond a simple compliance check. It should consider and address the issues in the top ten areas identified in the FRC Review and identify other potential areas for improvement to ensure that reporting is clear, concise, and provides a true and fair view of the company’s financial performance and position. Consider the technical skills within your team and where you may need external support / validation on conclusions reached.
• Taking a step back and consider the overall clarity and understandability of the annual report and financial statements. Are they free from jargon and technical language? Do they tell a clear, consistent and coherent story?
• Focussing on providing company-specific material accounting policies and disclosures that are relevant and material to the users’ understanding of the annual report and financial statements.

How KPMG can support

KPMG has extensive experience in helping companies navigate the complexities of corporate reporting. Our team of accounting and reporting experts can provide tailored support, including:

• Independent critical review of annual report and financial statements: We offer independent and objective reviews of annual report and financial statements, identifying areas for improvement to help you provide your users the information they need, whilst taking into account the various FRC guidelines and the accounting and reporting requirements. We can tailor the review to meet your requirements, covering either the full or selected sections of the annual report.
• Accounting and reporting: We provide guidance on complex accounting and reporting issues, helping you to navigate new standards and interpret challenging guidance. For example, we have supported several companies on streamlining their impairment process and disclosures – impairment being the key area where FRC raised the most questions.
• Year-end reporting support: We can support you during your year-end corporate reporting process by drafting narrative reports and financial statements disclosures, including the integration of climate-reporting requirements, providing secondment support as an integral part of your reporting team and assisting with FRC response letters.
• Accounting and financial reporting transformation: We can help you keep pace with the future of reporting, by harnessing accounting tools and processes to enhance your corporate reporting process or supporting you with transforming your annual report.
• Training and development: We offer customised training programs and workshops to enhance the skills and knowledge of finance teams, keeping them up to date on the latest corporate reporting requirements and best practices. Our team of expert trainers can complement your internal development programmes and support in meeting your CPD requirements.

By embracing the FRC's recommendations, companies can strengthen their corporate reporting and build a foundation for sustainable growth.