Annual report content requirements are in the hands of legislators and regulators, not companies
The Company Law Committee of the City of London Law Society has published its response (the Response) to the discussion paper issued by the Financial Reporting Council in April 2011 on “Cutting Clutter – Combating clutter in annual reports”. We discussed the FRC’s discussion paper in this post.
The main thrust of the Response is that the contents of an annual report are driven by a range of legal and regulatory requirements, and so reducing those content requirements needs action by legislators and regulators, not the exercise of discretion and judgement by the companies preparing the reports:
“Much in an annual report that may be regarded as clutter is required to be there to comply with law, regulation or accounting standards. The preparers of reports do not have a discretion to exclude such material or to include it in a document or website which is not part of the annual report. Such changes can only be made by legislators, regulators and accounting standard setters…
…If regulators are serious about cutting clutter in annual reports, they need to provide much greater clarity and guidance as to the purpose of the report and of specific disclosure requirements, and as to how they judge materiality and what will be challenged and what will not.”
The Response also highlights a difficulty for company directors with the suggestion that material in an annual report that does not change much from year to year should be removed from the report and instead appear on the company’s website:
“…for such changes to be adopted by companies, it will be necessary to ensure that the current liability regime for information in an annual report is extended to cover the information wherever it appears. Section 463 of the Companies Act 2006 gives protection to directors in respect of information appearing in the Directors’ Report and their Remuneration Report or which is deemed to form part of those reports. If information is to be hived off into an appendix or to a website, the same protections must apply.”
The largely unenthusiastic Response also observes that if the reader of a hard copy report has to switch to look at a website to gain a full understanding of a point in the report, “there is a risk that the report thereby becomes less accessible rather than more”.
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