Introducing the Modernisation of Corporate Reporting

“We want to make the UK’s reporting regime the most streamlined and proportionate in the world and will launch an ambitious consultation this year to co-design these changes with companies and investors” wrote Blair McDougall MP, Minister for Small Business and Economic Transformation, in a letter to the Chair of the Business and Trade Committee in January. 

The primary purpose of the letter was to update the Business and Trade Committee on plans for audit reform legislation. With the government’s current focus on growth and deregulatory measures, it was concluded that audit reform would result in additional costs for business. The decision was taken to withdraw those plans and instead focus on the Modernisation of Corporate Reporting (MCR) programme. So, what is the MCR programme, what happened to the non-financial reporting review and how will ICAEW be involved? This article sets out the answers.

What is the MCR programme?

First announced in October 2025, the MCR programme will be an “ambitious and holistic” review of both financial and non-financial reporting. In other words, a consideration of the Annual Report and Accounts (ARA) in its entirety. The programme will start with a broad consultation, expected in 2026. The Government are keen to implement significant de-regulatory measures as quickly as possible but implementation of the full range of outcomes will likely occur over the next few years.

Testing the purpose of reporting

The consultation will test the purpose of reporting across the full spectrum of business, from small and micro companies through to large private and public companies. With annual reports having grown in length over the years amidst increasing demands from a range of stakeholders, many would argue the ARA now falls under the old adage of “trying to keep everyone happy but pleasing no one”. A sharp focus and articulation of the purpose of the report and its users is a critical starting point to any meaningful reform. It's expected the Government will set out a clear proposition in the consultation: that the purpose of the ARA is to provide decision-useful information for investors and creditors.

Simplifying the financial reporting framework

The UK’s current financial reporting framework is complex, with various choices throughout the system. At its core, the Companies Act 2006 (CA 2006) requires all companies to prepare accounts for each financial year and for those accounts to provide a true and fair view of the financial position and performance of the company. Accounts can be prepared in accordance with either UK-endorsed IFRS Accounting Standards or the CA 2006. CA 2006 accounts include those prepared in accordance with FRS 102 ‘The Financial Reporting Standard applicable to the UK and Republic of Ireland’. While FRS 102 is the principal accounting standard in UK GAAP, small companies that meet the relevant criteria can benefit from reduced disclosure requirements by preparing accounts under Section 1A of FRS 102. Micro-entities, a sub-category of small companies, can choose to apply the further simplified FRS 105 ‘The Financial Reporting Standard applicable to the Micro-Entities Regime’. While these alternative regimes build proportionality into the framework, their optional nature means that, while many small and micro-entities choose to adopt them, not all do; thereby reducing consistency and comparability. 

Furthermore, FRS 105 comes with its “deemed true and fair” attribute. Introduced when the UK was part of the European Union, UK legislation needed to comply with the EU Accounting Directive resulting in accounts prepared under FRS 105 being deemed to provide users with a true and fair view. Despite FRS 105 having its avid supporters for its proportional approach, it also has strong critics for the limited information it produces, which brings into question whether it achieves a true and fair view.

Bearing in mind small and medium-sized businesses are a key driver of economic growth, is it helpful for their accounting framework to be so complicated? Is there a better way? Without getting into detailed discussions around where to draw the lines, the consultation may explore ways to simplify the categorisation of companies and their corresponding reporting requirements.

Legislation and accounting standards

The relationship between legislation and accounting standards, intrinsic to the framework,  may also come under scrutiny. While the CA 2006 refers specifically to preparing accounts in accordance with “UK-adopted international accounting standards” it doesn’t do the same for accounts prepared under UK GAAP. Instead, it refers to “Companies Act accounts” with several detailed reporting requirements then sitting in legislation that might be better suited to being within accounting standards. The formats of the primary financial statements, for example. 

With government time limited and many other competing demands, legislation is notoriously slow to change, especially when change requires primary legislation. By comparison, updating accounting standards is more agile. To make the framework fit for the long-term future and to ensure it can keep pace with developments in business, examining the relationship between legislation and accounting standards could reap benefits.

Non-financial reporting

With the MCR programme being an expansion of the originally planned non-financial reporting review (see more below), the consultation will include significant coverage of non-financial reporting issues too. Indeed, it’s here that firmer, more specific proposals are likely to be made as a result of feedback from previous consultations. In particular, proposed reforms relating to remuneration and corporate governance reporting can be expected. 

The Government announced in October that medium-sized companies will be exempted from the requirement to prepare a strategic report which could lead to further exploration of what should constitute baseline non-financial reporting for large companies. The additional reporting requirements that should be placed on more economically significant entities could also be under the spotlight.

Sustainability reporting

Is there any element of corporate reporting that won’t have specific proposals in the consultation? Yes, sustainability reporting. While the finalised UK Sustainability Reporting Standards are imminent (it’s possible they’ll be published around the same time as the consultation), this will only see them becoming available for voluntary use to begin with. The Financial Conduct Authority is consulting on amendments to the UK Listing Rules regarding implementation but this will only impact the relatively few companies in scope of the listing rules. Existing sustainability reporting requirements, in the form of the Climate-related Financial Disclosure Regulations and Streamlined Energy and Carbon Reporting regulations, are in the remit of a different government department and are therefore not subject to firm proposals within DBT’s MCR consultation.   

Nevertheless, the principles explored and any new corporate reporting framework established as a result will undoubtedly bear in mind how to integrate sustainability information into a company’s annual report.

What happened to the non-financial reporting review?

Those following developments closely will know, as noted above, that the MCR programme is an evolution of the previously planned Non-Financial Reporting (NFR) review. 

Following the UK’s departure from the EU, the conservative government of the day launched a review in May 2023, ‘Smarter Regulation to Grow the Economy’, focusing on how regulation across the UK economy could be improved to reduce burdens and drive economic growth. Building on this, shortly after DBT published its ‘Smarter regulation non-financial reporting review: call for evidence’ taking a fresh look at how non-financial reporting requirements could be refreshed and rationalised to achieve the same aims.

Off the back of the call for evidence, it was announced in March 2024 that company size thresholds would be increased by 50%; a measure followed through by the new labour government in October 2024 which became effective from 6 April 2025. At the same time, several obsolete or overlapping requirements relating to the contents of the directors’ report were removed. A further consultation followed in the summer of 2024 targeted at medium-sized companies asking whether they should be exempted from preparing a strategic report and whether their employee threshold should be uplifted (from 250 to 500 employees). 

The October 2024 statement also saw the then Secretary of State for Business and Trade, Jonathan Reynolds, announce that DBT would launch an ambitious consultation aimed at simplifying and modernising the UK’s non-financial reporting framework. Ahead of its planned launch, DBT undertook a period of pre-consultation consultation in the summer of 2025, with DBT testing their thinking with key stakeholders, including ICAEW members. The response indicated that “only reviewing non-financial reporting would fall short of what is needed” and that a more holistic approach was warranted. Alongside ministerial changes driving a different approach, this culminated in the October 2025 announcement of the expanded and reframed MCR programme.  

How will ICAEW be involved?

ICAEW members are a trusted and respected voice in corporate reporting and broader business. Signalling a shift in the historic approach to implementing change, the current government is keen to co-design any new framework with key stakeholders. DBT is eager to engage ICAEW throughout the MCR programme and, building on our strong relationship as a critical friend, we will be working closely with them to co-create a modernised framework that is fit for the future. 

Through our active members and technical committees, ICAEW will submit a formal response to the consultation. While ICAEW has long-established positions on certain aspects (such as any reporting framework being sufficiently proportionate to accommodate different types and sizes of company and of having a legislative framework that contains only minimal or high-level requirements), thorough dialogue on all aspects of the consultation will take place to ensure our response reflects the current views of members. Much like the consultation itself, the door will be open to new debate and thinking.

In addition, we will use our usual communication channels, including further By All Accounts articles, to keep members informed of developments and other activities.

Next steps

While there may be clarity around the target destination being the UK having the most streamlined and proportionate corporate reporting framework, how we get there and how long the journey will take is markedly less clear. The proposed path may also contain some bold and ambitious hurdles, deliberately placed to stimulate debate on the best way forward.  Relishing the challenge, in both the public and member interest, ICAEW stands ready to play a leading role in charting the journey ahead.

Sally Baker, Head of Corporate Reporting Strategy, ICAEW