The government has placed the UK’s non-financial reporting regime under the spotlight following a call for evidence it is describing as a Brexit regulation shake-up.
The UK’s framework for non-financial reporting needs to respond to a growing demand for non-financial information to support decision-making by investors and other stakeholders, the government says, while also allowing companies to produce information that is focused, comparable and concise.
The UK’s corporate reporting framework must evolve to deliver the information investors and other stakeholders need to support economic growth and long-term value creation, the government adds. It will also support meaningful engagement with the information at board level to drive strategic decision-making and provide a platform for organisations to demonstrate their commitment to addressing key social issues.
The intention to conduct this review was announced as part of the response to the Restoring Trust in Audit and Corporate Governance white paper. The non-financial reporting review will primarily focus on the Companies Act and the disclosure requirements contained within it. Views on wider reporting requirements that sit outside of the annual report are also being collected, covering the gender pay gap and modern slavery.
The review will evaluate whether there are opportunities to rationalise current rules, following a general ramping up of non-financial reporting requirements by government and regulators. Although new rules have been imposed to increase the transparency and accountability of companies, this has resulted in an increase in the size and complexity of annual reports and an expansion of the types of information companies are expected to report on outside of the annual report.
Business Minister Kevin Hollinrake says the UK government wants to shred unnecessary paperwork so businesses can focus on growing and making profit: “By seizing on the opportunities of Brexit to streamline our non-financial reporting regime, we’ll make the UK an easier and more competitive place to do business, while delivering on our priority to grow the economy.”
As part of this, the government will also review the size thresholds that determine some of the information a company needs to produce in its annual report, in particular the definition of micro-enterprises. “This threshold, a relic of an EU directive, could be forcing too many of Britain’s smallest businesses to spend time and money preparing information to a level of detail only needed for larger companies, distracting them from focusing on growth and creating jobs,” Hollinrake adds.
Sarah Dunn, Senior Manager, Corporate Reporting at ICAEW, says: “We welcome the publication of the government’s call for evidence. ICAEW has long called for the government to review the underlying legislative framework for the reporting of non-financial information, in particular the need to rationalise the scope and requirements for the strategic report and directors’ report.
“Now, more than ever, there is a need to ensure that the legislative foundations for non-financial reporting are sufficiently clear and robust. This is crucial not only to support the growing demand for companies to produce high-quality non-financial reporting but also to accommodate future developments. In particular, a key consideration will be how to integrate the forthcoming IFRS Sustainability Reporting Standards as issued by the International Sustainability Standards Board into the UK reporting infrastructure.”
The review is an important and timely exercise which, if executed well, has the potential to future proof the UK’s non-financial reporting regulatory framework, Dunn adds.
A recent post-implementation review covering non-financial reporting contained in the Companies Act found that several improvements are necessary to ensure the UK’s non-financial reporting framework delivers its intended objectives.
When assessing future reforms, the government will also consider how any changes could interact with its ambitions for the UK to become a centre for green finance as set out in the Mobilising Green Investment: 2023 Green Finance Strategy.
The call for evidence will end on 16 August. The government will then use the information collected to develop detailed proposals for public consultation next year.
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