Financial Reporting Review Panel guidance on optimal corporate reporting
The 2011 Annual Report of the FRRP – the regulator charged with examining the annual accounts of public and large private companies to see whether they comply with the requirements of the Companies Act 2006 – sets out in short form the “characteristics of corporate reporting which…make for a good annual report”:
A single story
The narrative in the front end is consistent with the back end accounting information; significant points in the financial statements being explained in the narrative reports so that there are no surprises hidden in the accounts.
How the money is made
The business review gives a clear and balanced account which includes an explanation of the company’s business model and the salient features of the company’s performance and position, good and bad.
What worries the Board
The risks and uncertainties described in the business review are genuinely the principal risks and uncertainties that the Board are concerned about. The descriptions are sufficiently specific that the reader can understand why they are important to the company. The business review also describes the mitigating actions taken by the Board to manage the impact of its principal risk and uncertainties. The links to accounting estimates and judgements are clear.
Highlighted or adjusted figures, key performance indicators (KPIs) and non‐GAAP measures referred to in the business review are clearly reconciled to main heading figures in the accounts and any adjustments are clearly explained, together with the reasons why they are being made.
Cut the Clutter
Important messages, policies and transactions are highlighted and supported with relevant context and are not obscured by immaterial detail. Cross ‐ referencing is used effectively; repetition is avoided.
The language used is precise and explains complex accounting and reporting issues clearly; jargon and boiler‐plate are avoided.
Items are reported at an appropriate level of aggregation and tables of reconciliations are supported by, and consistent with, the accompanying narrative.
Significant changes from the prior period, whether matters of policy or presentation, are properly explained.
True and fair
The spirit as well as the letter of accounting standards is followed.
A true and fair view is a requirement of both UK and EU law and applies equally to accounts prepared in accordance with UK GAAP and IFRS.
For the FRRP’s recent work on company reporting of principal risks and uncertainties, see this post. For the Financial Reporting Council’s initiative on “cutting clutter” from annual reports, see this post.
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