The Financial Reporting Council’s (FRC) latest thematic review provides smaller listed entities with practical steps they can take to improve corporate reporting. It aims to address the continuing quality gap in the reporting of companies inside and outside of the FTSE 350, as reflected in the regulator’s Annual Review of Corporate Reporting 2024/25.  

Based on a review of the annual reports and accounts from 20 companies outside of the FTSE 350, listed both on the Main Market and Alternative Investment Market (AIM), it focuses on four key areas that investors pay close attention to:

• revenue;
• cash flow statements;
• impairment of non-financial assets; and 
• financial instruments.

The thematic review, Reporting for the UK’s smaller listed companies, reiterates the factors that might lead the FRC to raise substantive queries with companies, while highlighting characteristics observed in good quality reporting. It contrasts these with examples of hypothetical, less informative disclosures. The inclusion of hypothetical lower quality examples – a new approach from the FRC’s Corporate Reporting Review team – aims to help readers pinpoint areas for refinement.

Transparency, accuracy and consistency of reporting are emphasised across all four areas. Here are improvements for each of them, plus a general rule for all reporting. Each area below also includes links to related resources from ICAEW’s Corporate Reporting Faculty.

Revenue: have a clear accounting policy

Companies should have a clearly articulated accounting policy on revenue recognition, covering all material revenue streams.

Specific improvements could be made in these areas: explanations around the timing of satisfaction of performance obligations; determination of the transaction price; and agent versus principal considerations.

• Factsheet: IFRS 15 Revenue from Contracts with Customers

Cash flow statements: clear up classification

Misclassification is one of the most common reasons behind the regulator’s enquiries. It often stems from the lack of explanation and rationale of specific transactions and classification decisions.

Undertaking consistency checks between amounts disclosed in the cash flow statement and disclosures elsewhere – for example, the strategic report – is noted as a practical step towards improvement.

• Guide: Statement of Cash Flows: common pitfalls and tips for reviewers

Impairment of non-financial assets: be clear and transparent

Impairment disclosures provide insight into management’s view of the business and their expectations for its future. Companies should provide transparent disclosures that reflect reasonable and supportable expectations for future cash flows and market conditions.  

Better quality reports include clear explanations of significant judgements and estimates, key assumptions and sensitivity analysis that are consistent with the narrative elements of the annual report. 

• Factsheet: Applying IAS 36 Impairment of assets

Financial instruments: tailor policies

Information on financial instruments helps investors and other creditors assess a company’s liquidity and viability. Appropriate accounting and disclosure are crucial in understanding transactions, particularly more complex financing arrangements, and their effect on a company’s financial position and performance. 

The existence and disclosure of tailored accounting policies, together with transparency about the nature of financial instruments, is key to understanding an entity’s exposure to financial risks. 

• Factsheet: IFRS 9 Financial Instruments - overview

Finally: less is more

Effective communication is clear and concise. The FRC identified several opportunities to cut clutter within annual reports through its reviews. Accounting policies, key sources of estimation uncertainty, cross-referencing and parent company accounts are identified as areas where irrelevant or immaterial information could be removed and the length of reports reduced.  

Sally Baker, ICAEW’s Head of Corporate Reporting Strategy, says: “Smaller listed entities are a vital piece of the UK economy, offering significant investment opportunities and the potential for growth. With the Annual Report and Accounts being the main communication tool with investors, high-quality reporting by these companies is crucial in building investor confidence and gaining access to the capital they need to achieve that growth.”