For the first time in four years, cash flow statements (IAS 7) is back at the top of the list of matters where the Financial Reporting Council (FRC) asked companies “substantive questions” according to its Annual Review of Corporate Reporting 2025/2026.

Far from being a doom-and-gloom report, however, the FRC review, conducted by FRC’s Corporate Reporting Review team, indicates:

• a continued fall in the proportion of reviews that lead the regulator to raise substantive enquiries;
• FTSE 350 companies maintaining standards in the quality of reporting; and
• some evidence of a reduction in the quality gap between FTSE 350 and other companies.

The review also shows an ongoing fall in substantive queries regarding climate-related narrative reporting. In 2025/2026, this accounted for 1% of reviews, compared to 2% the previous year. According to the review, this suggests that “companies are becoming accustomed to these reporting frameworks”.

“It is encouraging to see the FRC’s latest Annual Review highlighting continued high standards of corporate reporting and a narrowing quality gap between larger listed companies and other entities,” says Sally Baker, ICAEW’s Corporate Reporting & Governance, Director. “High-quality reporting is fundamental to maintaining investor confidence, supporting informed decision-making and, ultimately, driving economic growth.”

Substantive queries

In regard to cash flow statements, the review found the most common issues identified “continue to relate to classification within the cash flow statement [and it] remained the most common issue to result in a restatement”.

Classification is one of the areas covered in guidance to support preparers from ICAEW’s Corporate Reporting Faculty, specifically it’s guide: Statement of cash flows: common pitfalls and tips for reviewers.

The FRC also asked substantive questions on:

• financial instruments (IFRS 9),
• impairment of assets (IAS 36),
• fair value measurement (IFRS 13), and
• revenue recognition (IFRS 15).

Fair value is in the top five driven in part by the thematic review of investment trusts, venture capital trust and similar closed-ended entities.

“We sought clarification of the transaction price, and resulting recognition of a significant gain, in an exchange of financial assets held at fair value through profit or loss,” states the review. The report also confirms the regulator asked about “the basis for determining the initial fair value and effective interest rate of related party loan arrangements”.

While there were examples of missing disclosures, most queries arose due to a lack of clear explanations of how the standard’s requirements were applied to fair value measurements and valuation techniques.

Overall, the proportion of reviews resulting in substantive queries has now fallen for two consecutive years. The FRC puts this down to improvements in reporting quality as well as stability in accounting standards.

The higher number of thematic reviews, where the scope is limited to specific aspects of reporting, also likely contributed to less substantive queries being raised, according to the report.

Key expectations and changes for reporters

“For the majority of companies, the reporting requirements for the coming season remain mostly unchanged,” says the review. However, the authors encourage companies to consider the FRC’s key expectations, which are outlined in section 4 of the report.

For listed companies, the 2026/27 reporting season will see the UK Corporate Governance Codes’s new Provision 29 come into effect. This requires boards to make a declaration in relation to the effectiveness of the material internal controls on a ‘comply or explain’ basis.

For companies reporting under FRS 102, this reporting season will be the first where reporters  need to apply the revisions aligning accounting for revenue and leases under FRS 102 with principles in IFRS Accounting Standards. The FRC anticipate that these companies “should already be well progressed in assessing the effects this will have on their reporting”.

Other key expectations include:

• Delivering a clear, coherent and consistent narrative alongside fair, balanced strategic reviews and company-specific accounting policies.
• Preparing for upcoming standard updates and incorporating findings from FRC thematic reviews.
• Addressing frequent challenge areas by ensuring correct cash flow classifications, providing detailed inputs and assumptions for impairment testing, and disclosing comprehensive details for all material revenue streams.

As reporting requirements continue to evolve, preparers should focus not only on compliance, but also on delivering clear, coherent and meaningful information for investors and other stakeholders.

Baker encourages preparers to make the most of the FRC’s various thematic reviews, highlighted in section 7 of the report, alongside guidance published by ICAEW that aims to support members with implementation of reporting requirements.

AI use in corporate reporting

The review also responds to the growing use of AI in reporting. This includes the extent of its use in preparing reports and accounts, and whether this has any impact on quality. The FRC reminds preparers who are using, or considering using, AI that “companies and their directors remain accountable for the report and accounts”.

Maintaining robust reviews to catch technical compliance issues and ensuring effective oversight when utilising AI is cited as a key expectation in the review.

The number of complaints about specific corporate reporting matters has doubled year-on-year – this has coincided with an increased use of AI, including several complaints themselves that appear to have been drafted using AI.

The FRC's report concludes with an outline of its complaints process, highlighting what complainants should consider to enable the FRC to pursue matters raised effectively.