Strategic Report changes

Posted in Reporting, News on 11 September 2017 By Kay Kayachith, Consultant

The Financial Reporting Council (FRC) has published a consultation draft of its Guidance on the Strategic Report setting out proposed changes which will likely impact annual reports for 2018.

The Guidance on the Strategic Report was first issued in 2014, following the introduction of the requirement for companies to produce a Strategic Report. It is being amended now to take account of the new regulations for non-financial reporting that was presented by the EU Non-Financial Reporting Directive.

The proposed changes have been outlined below along with a refresher about the EU Non-Financial Reporting Directive.

EU Non-financial Reporting Directive

  • Effective for financial periods beginning on or after 1 January 2017.
  • The new non-financial reporting regulations apply to companies and qualifying partnerships with more than 500 employees and are traded companies; banking companies; authorised insurance companies; and companies carrying on insurance market activity.

The additional information required is:

  • information regarding the disclosure of anti-bribery and anticorruption matters.
  • a description of any due diligence processes implemented by the company in pursuing the policies relating to non-financial matters and the outcome of those policies.

Amendments to the Guidance on the Strategic Report

The FRC is amending the Guidance on the Strategic Report to take account of the new regulations for non-financial reporting. The changes to the Guidance now being proposed are intended to:

  • reflect the changes made to the Companies Act 2006 in order to implement the EU Non-Financial Reporting Directive.
  • enable stakeholders within the Strategic Report to assess how the directors have performed their duties to promote the long-term success of the company.
  • make other improvements to reflect recent reporting developments such as the ESMA Guidelines on Alternative Performance Measures.

The changes proposed in the draft Guidance include:

Non-financial information – the draft Guidance contains new commentary on non-financial disclosures to assist companies to comply with the new Non-Financial Reporting Directive requirements.

Purpose of the Strategic Report – there is increased emphasis in the draft Guidance on ensuring that the Strategic Report meets its overall purpose to inform members and to help them assess how the directors have performed.

Materiality – a number of changes are proposed to the commentary on the concept of materiality. These include the information material to those stakeholder groups who take a long-term view on investment.

Long term success – the new draft Guidance states that information in the Strategic Report should enable shareholders to assess the factors that may have an impact on the long-term success of the business.

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