“Reducing the time, energy and cost of preparing unnecessary disclosures and increasing clarity for investors”
The Accounting Standards Board of the Financial Reporting Council (FRC) published on 6 April 2011 a discussion paper (the Paper) titled “Cutting clutter – combating clutter in Annual Reports”. The Paper can be read here.
The background to the Paper and the debate it addresses is the increasing length and complexity of listed company annual reports. As the Paper says, “clutter undermines the usefulness of annual reports and accounts by obscuring important information and inhibiting a clear understanding of the business and the issues that it faces”. The Paper defines clutter in annual reports as:
- Immaterial disclosures that inhibit the ability to identify and understand relevant information; and
- Explanatory information that remains unchanged from year to year.
The Paper builds on the FRC’s 2009 paper “Louder than words: Principles and actions for making corporate reports less complex and more relevant”, which can be read here.
The FRC’s practical tips to reduce clutter
The most useful part of the Paper from a practical perspective are the three “disclosure aids” to reduce clutter in three particular areas:
- Governance.
- Accounting policies.
- Share-based payments.
These disclosure aids show pro forma pages from a sample annual report, marked-up with suggested disclosure best practice.
The Paper also sets out two “behavioural aids” to be used by the annual report team at the planning phase and at the review phase in the annual report process.
Other work on improving the quality of company reporting
- In January 2011 the FRC made recommendations that focused on the role of the board and the audit committee in its report “Effective company stewardship: Enhancing corporate reporting and audit”, which can be read here.
- The Department of Business, Innovation and Skills is consulting on the future of narrative reporting – see this post.
UPDATE 14 October 2011: The Company Law Committee of the City of London Law Society has published its response to the FRC’s Paper – see this post.
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