As a review of the business during the financial year, the strategic report’s purpose is to inform shareholders and help them assess how the directors of a company have performed their duty under s172, CA 2006, to promote the success of the company for the benefit of its members as a whole.

The directors of all companies must prepare a strategic report for each financial year, except for those within the small companies exemption ie

• companies entitled to prepare accounts for the year in accordance with the small companies regime, including micro-entities; and
• companies that would be so entitled save for being or having been at any time within the financial year to which the accounts relate a member of an ineligible group.

Further guidance on the criteria for the relevant size regimes is available at:

• Determining the size of a company

Establishing the content requirements of the strategic report is a complex process as the report contains a number of different components with different scoping criteria.

As a minimum, all companies are required to include the following:

• a fair review of the business including principal risks and uncertainties (CA 2006);
• financial key performance indicators (KPIs) (s414C(4)-(6), CA 2006); and
• references to and explanations of amounts included in the annual accounts (s414C(12), CA 2006).

There are additional requirements for various categories of company and companies may find that they fall into multiple categories. Due to their complexity, careful consideration of the scoping requirements is needed to determine the nature of information to be included. For more detailed guidance visit:

• The strategic report: scoping and content

The strategic report should contain information that is material to shareholders and helps them assess whether the directors have performed their duty to promote the success of the company.

This concept of materiality is woven into many of the legal requirements for the preparation of the strategic report. For example:

• Companies should provide details of the principal risks and uncertainties facing the company ie, not a list of all the risks facing the company.
• Key performance indicators should be provided i.e, not all the performance metrics used by the company.
• Information should be provided ‘to the extent necessary’ i.e, focus on the matters that are the most significant to the business.

Materiality is entity-specific and requires judgement by directors as to the relative importance of a particular matter to the business.

Materiality should be reviewed annually to ensure that the information included in the report appropriately reflects changes in facts and circumstances affecting the company.

The FRC’s Guidance on the Strategic Report serves as a best practice statement to help companies prepare a strategic report.

Section six of the FRC guidance outlines a set of communication principles which are intended to help companies when preparing a strategic report:

1. The strategic report should be fair, balanced, and understandable.
2. The strategic report should be clear and concise yet comprehensive.
3. Where appropriate, information in the strategic report should have a forward-looking orientation.
4. The strategic report should provide information that is entity-specific.
5. The strategic report should highlight and explain linkages between pieces of information presented within the strategic report and in the annual report more broadly.
6. The structure, presentation and content of the strategic report should be reviewed annually to ensure that it continues to meet its purpose and only contains information that is relevant.

Other practical points to consider when preparing a strategic report include:

• Structure - has thought been given to how the information will be presented to ensure it is easy for users to digest and navigate?
• Explanations - have appropriate explanations and definitions for technical terms been provided throughout the report, such as, explanations of KPIs, including the definition, method of calculation, source of underlying data and assumptions?
• Consistency - is the information provided in the strategic report consistent with the financial statements and/or information presented elsewhere?
• Comparatives - where appropriate, have comparatives and explanations of any changes from previous years been given?

For more detailed guidance on the strategic report, visit:

• Factsheet: Strategic Report and Directors' Report
• Guidance: The strategic report: scoping and content
• Further guidance on Section 172(1) statements.
• Webinar: Top tips for s172(1) statements and other narrative reporting