The UK’s Financial Reporting Council (FRC) has begun a consultation on amendments to its guidance on the strategic report which aims to improve non-financial reporting by companies. The guidance was originally issued in 2014 when strategic reports were introduced.

The revised guidance also reflects the FRC’s desire to improve the effectiveness of section 172 of the Companies Act 2006. This section requires a director to have regard to a number of matters including the long term impact of any decisions, the interests of stakeholders; and non-financial matters in pursuing their duty to promote the long term success of the company. The FRC said it is therefore encouraging companies, to provide better information on how companies have fulfilled this duty to improve accountability to shareholders and other stakeholders.

The FRC said that these proposals also reflected the enhanced disclosures that certain large companies are required to make in respect of the environment, employees, social matters, respect for human rights and anti-corruption and anti-bribery matters and take account of the new regulations for non-financial reporting that are effective for financial periods beginning on or after 1 January 2017.

Paul George, FRC’s executive director of corporate governance and reporting, said: “High quality reporting enhances transparency and trust in business. The proposed amendments to the guidance on the strategic report encourage business to consider the impact of their activities on stakeholders and the factors that contribute to the success of the company over the longer term. We encourage all companies to make non-financial reporting an integral part of the annual report and to provide information which helps shareholders and the wider community to understand how directors have had regard to their obligations under Section 172 of the Companies Act 2006. The FRC is committed to improving reporting in this area since it believes that it provides an important insight into the culture of a company.”

The proposals were welcomed by the International Integrated Reporting Council (IIRC) which suggested they could provide the potential for a step-change in the quality of UK corporate reporting. The IIRC praised the FRC’s emphasis on the integration of non-financial information throughout the strategic report and its focus on improving the quality of Section 172 disclosures to ensure the long-term impact of company decisions is understood by shareholders and other stakeholders.

The IIRC said that since the release of the international integrated reporting (IR) framework in December 2013 and the original FRC guidance issued in June 2014, integrated reporting had been adopted by a number of FTSE listed companies, including United Utilities, Unilever, Diageo, HSBC and Marks & Spencer.

Richard Howitt, IIRC’s chief executive said:“This guidance provides the clearest signal yet that a company can use the International IR Framework to prepare its Strategic Report, as the updated guidance increases the complementarity of these reporting approaches. This increased alignment provides the opportunity for a step-change in the quality of corporate reporting. The major shift with today’s guidance is that, not only are the principles consistent, but now the language of long-term value creation is becoming embedded in UK corporate reporting practice.”

The deadline for responses to the FRC consultation is 24th October 2017.

Last Updated: 19 August 2017