Year end reporting: Evolution not revolution

What’s new in the front-end of the annual report?

We’ve had relatively little explicit change in the legal requirements for the front ends of annual reports this year or for the coming year.  This doesn’t mean things haven’t changed though.

More focus on smaller companies by CRR

The CRR (Corporate Reporting Review) team, a department of the accounting regulator; the FRC, reviews a sample of annual reports each year.  For those they select, if they find any areas of apparent non-compliance with regulation or questions they wish to ask, they write to the Chair for clarification.  Historically the companies reviewed by the CRR team have been weighted to the largest listed companies; members of the FTSE 350.  The last two years have seen more attention fall on smaller listed, AIM and private companies.  These made up a majority of the companies reviewed this year.  We have also seen an increasing focus by CRR on the front ends of annual reports with comments raised, for instance, on balance in strategic reports and efforts to comply with climate reporting requirements.

Climate reporting now

While there was no new legislation in the UK this year we are seeing a steady raising of the bar in climate reporting.  There is a greater expectation, by regulators and investors too, that companies are absolutely clear about how, in the listed sector, they have managed to comply with the TCFD requirements or, where they haven’t, when and how they will achieve this.  Areas noted include balance in reporting (much made of minor green initiatives while failing to focus on the main sources of emissions), connectivity with the financial statements (if it’s in the front end why can’t we see it in the back end) and, interestingly, concern that the sheer volume of these statements may make them harder to understand.  This last point could prompt a few wry smiles from our readers given the number of extra pages this reporting has added to the annual report.  The trend isn’t just from regulators though, we are seeing companies facing ESG ratings downgrades when their level of compliance or quality of reporting hasn’t changed.  The bar has simply moved faster than they have.

Climate reporting to come

While I noted that UK legislation hasn’t formally changed, there is much on the horizon.  In the UK we are expecting some form of UK adoption of International Sustainability Standards Board (ISSB) reporting.  For listed companies, this is expected in 2026.  For many other companies we are seeing European regulation capturing subsidiaries under European sustainability reporting standards and in the future this will directly capture companies making significant sales in Europe even where they aren’t based in European companies.

Controls and governance

The FRC has updated the Corporate Governance code for listed companies and the QCA has updated its code; used by much of the AIM market.  Both have increased focus on reporting on controls and the QCA’s code has moved notably closer to the code for fully listed companies in many areas.

Reporting simplification - company size thresholds

Last week we were told that the proposal to increase the size thresholds for small and medium companies, which was a casualty of the early election date, is back on the agenda.  Draft legislation hasn’t yet been published but is expected to include the 50% increase in the monetary thresholds here and removal of some repetitive reporting requirements proposed in the last government’s legislation. 

The Department for Business and Trade has also stated that it intends to launch a new consultation on simplifying the UK’s non-financial reporting framework next year.