Ten years ago, the Financial Reporting Council (FRC) began a bold experiment that sought to provide companies and investors a safe space in which to explore better ways of reporting. That experiment resulted in the formation of the Financial Reporting Lab. The Lab’s objective is to improve company reporting by working with preparers, investors and others on the areas of reporting that are particularly challenging or where investors are looking for improvements.
Since its formation, the Lab has gained a strong reputation for expressing a market view on corporate reporting. It has helped to raise the standard of reporting and has influenced policymakers in the development of reporting standards and regulation. But, most importantly, it provides real-life examples of how companies can improve their reporting.
Its findings are published in freely available reports covering topics such as the strategic report, audit committee reporting, remuneration reporting and financial reporting. It has also explored the potential of technology to transform the production and consumption of corporate reporting. As we celebrate its anniversary, there is still much for the Lab to do to help improve reporting as it evolves in the future.
The upcoming reporting season
Reporting season is demanding in many ways and the Lab produces many resources to identify the expectations of investors and other users, which can help guide companies as they prepare to report to the market. Those most relevant to the upcoming reporting season are highlighted in the following paragraphs.
The Lab released two reports on investor expectations associated with the pandemic and its aftermath. These related to going concern, risk and viability; and resources, action and the future. Updates to these findings, with additional examples of emerging practice, illustrate how the focus of companies changed as the effects of the pandemic and resultant lockdowns continued.
Risks have also been brought into sharper focus by the pandemic. The Lab’s report, Reporting on risks, uncertainties, opportunities and scenarios investigates how the gap between current risk reporting and investor expectations could be narrowed.
Investors are also increasingly calling for better information on how companies express regard for their stakeholders and how key decisions take their perspectives into account. In its Reporting on stakeholders, decisions and Section 172 report, the Lab outlines the information on stakeholders and decisions that investors want to see from reporting, and considers how the s172(1) statement is a helpful bridge between the two.
It’s not just investors driving change – regulation is also evolving, with mandatory climate-related disclosures in place for premium-listed companies from 2021 and some other companies in 2022. To help companies prepare, and building on earlier work on climate reporting, the Lab recently released a report, TCFD: ahead of mandatory reporting, that considers current Task Force on Climate-Related Financial Disclosures (TCFD) reporting practice, including practical advice for improvements and examples from current practice. A snapshot of uptake of TCFD in the UK and research on scenario analysis have been published alongside the report.
Finally, on digital, ahead of the mandatory use of structured data for listed company annual reports, the Lab reviewed early adopters and produced a report Structured reporting: an early implementation study, covering key tips for companies.
All of the above reports (and more) are freely available and can be found at frc.org.uk/Lab.
About the author
Phil Fitz-Gerald, Director, Financial Reporting Lab
