The FRC has published its ‘Annual Review of Corporate Reporting: 2020/21’ which has identified 10 areas in which it would like to see improvement. Top of the list of reporting improvements is judgements and estimates, then revenue, the statement of cash flows and unsurprisingly given the pandemic, impairment of assets.
The FRC reviewed 246 annual reports and accounts (up 14% on 2020) and wrote to 97 companies with questions about their reports. Significant non-compliance was found at 15 companies who were required to restate their accounts.
The Annual Review identifies FRC’s 2021/22 priorities as work related to climate-related risks and new disclosures, and judgement and uncertainty in the face of the continuing economic and social impact of COVID-19. “Companies should ensure that the impact of these matters on their business is appropriately reflected in the financial statements and wider annual report,” says the FRC’s Annual Review.
It reminds us that in 2020, the FRC undertook a thematic review of climate-related considerations in the context of compliance with regulatory requirements, good governance and investor expectations. More recently it carried out a thematic review of emissions and energy use disclosures under the new Streamlined Energy and Carbon Reporting rules. The FRC will continue to monitor how well companies have met its expectations as part of its routine reviews.
The FRC has also published its year-end bulletin of key corporate reporting matters for companies which sets out the FRC’s areas of focus for the coming year. ‘Key matters for 2021/22 reports and accounts’ provides detailed findings from its Corporate Reporting Review activities during the year, as well as illustrating good practice examples.
From 2021, premium listed companies must disclose their compliance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations on a comply-or-explain basis. Those disclosures will be scrutinised by the FRC. The bulletin points out that the FRC also expects material climate change policies, risks and uncertainties to be included in narrative reporting and appropriately considered and reflected in the financial statements.
“The annual report needs to tell a clear and cohesive story so investors can make informed judgements about a company’s performance and its future prospects, particularly in continuing times of uncertainty”, says Marianne Mau, Technical Lead in ICAEW’s Financial Reporting Faculty. “Companies should make plans well ahead of the year-end to ensure they co-ordinate the gathering of data to fulfil specific disclosure requirements, as well as having the time to review how that information is reflected and linked in both the ‘front’ and ‘back’ of the accounts.”
The Financial Reporting Faculty has published a short online guide to International Sustainability Reporting Standards explaining developments to date and the implications for UK reporters.
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