Reporting by the UK’s largest private companies

Tina Whitington Date published: Mar 05, 24

In January 2024, the Financial Reporting Council (FRC) issued their latest thematic review covering the quality of reporting in the UK’s largest private companies.  The review focuses on the areas of most importance to stakeholders and those areas where they expect to see the highest risk of non-compliance.

The overarching issues in reporting

The overarching issue with reporting stems from a lack of consideration of the following:

• Whether the report as a whole is clear, concise and understandable
• Whether the report omits immaterial information
• Whether additional information if necessary to understand particular transactions, events or circumstances

The FRC believe improvements can be achieved if a step back is taken to consider the entire report, not just from a shareholder perspective, but from the perspective of investors, creditors, customers, employees and other stakeholders.

The preparers of the annual report should ensure that they are familiar with the disclosure requirements, including consideration of whether additional disclosure is required to provide a better understanding.  This does not necessarily mean lengthy disclosures, but there should be an explanation of the why?  For example, why is a key performance indicator important? Why is a risk a principal one?  Using a tabular format often allows this detail to be expressed more clearly and with fewer words and is a good template to focus on the requirements.

This being said, there is still the tendency to boiler plate disclosures and this was noted throughout the FRC review, including areas such as revenue recognition and other accounting policies, discussion on financial instrument risks e.g. liquidity risk.

Although climate disclosures were not a focus of this review, there was still concern that companies were providing additional disclosure to those required but that it was used as a form of greenwashing as companies made green claims which were at odds with the strategic report.  A good overall review for consistency is always important.

What are the FRC recommendations?

In conclusion, the FRC provides a list of key expectations.  These are summarised as follows:

• Provide a balanced strategic report that focuses on the elements of development, performance and position
• Explain how the company or subgroup fits into a wider group structure
• Tailor accounting policies for transactions and balances that are complex or judgemental and keep policies under review
• Disclose revenue policies explaining the nature of each significant revenue stream, when it is recognised and how its value is determined
• Provide specific details of judgements taken and clearly explain the rationale for the conclusion reached
• Clearly distinguish which estimates have a significant risk of material adjustment to the carrying amount of assets and liabilities, providing additional quantitative detail where necessary
• Disclose clearly the nature of provisions and the uncertainty in timing or amount for significant provisions
• Explain the nature of each significant financial instrument risk within the company ,including quantification and sensitivity analysis where necessary
• Conduct a critical review of the annual report and accounts prior to finalisation. This includes considering whether the report as a whole is clear, concise and understandable, as well as checking for internal consistency and more detailed presentation and disclosure matters.

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