In its Annual Review of Corporate Reporting, the FRC has highlighted the need for detailed explanations to be included in reports to help users understand the positions companies have taken in relation to the uncertainties they are facing.

Alongside reflecting on its monitoring activities in the previous 12 months, the FRC’s annual review outlines the regulators expectations for the upcoming reporting season (2023/24).

This year it has emphasised that companies should be providing values of key assumptions, describing any significant accounting judgments and ensuring that disclosures are reassessed each year to ensure that assumptions remain relevant.

Top reporting issues

The report confirms that in its 2022/23 monitoring, the FRC most frequently raised issues with companies relating to impairments. In particular, companies should ensure that key inputs and assumptions applied in impairment testing have been disclosed and explained, and also that impairment testing methodology complies with accounting standards.

ICAEW’s Corporate Reporting Faculty publishes a number of factsheets to support members with specific accounting issues, including in the complex area of impairments under UK GAAP and IFRS.

The FRC also highlighted judgements and estimates to be a key area where it was challenging companies. The regulator suggests that current economic uncertainties may be triggering additional disclosure requirements for assumptions and sensitivities, and that estimates may need to reflect a wider range of possible outcomes than in previous reporting periods.

The report states: “Companies have not always provided adequate disclosures on these points for users to understand the positions taken. We expect these to remain areas of risk, and close corporate reporting review focus, for the coming reporting season.

Cash flow statements are another area where the FRC continues to raise concerns, with several companies forced to restate their results after monitoring. ICAEW members can also access support on this area with guidance available covering FRS 102 and IAS 7.

In more positive news, Alternative Performance Measures this year fell out of FRC’s “top ten” issues for the first time in several years.

Early days in climate-related reporting

The FRC’s report also discussed the “very different stages of maturity” demonstrated in companies’ approach to climate-related reporting. This year was only the second year the FRC examined Taskforce for Climate-related Financial Disclosures (TCFD) disclosures, looking at 20 companies.

While it found an “incremental improvement” in reporting, the FRC confirmed that some of the companies it reviewed were “struggling to clearly articulate their plans to adapt to a lower carbon economy due to the volume of additional information presented”.

Looking forward, the FRC states that it expects companies to provide a clear statement of consistency with TCFD and will be increasing its feedback on climate-related reporting, including potentially challenging companies that have not disclosed information that the FCA ‘particularly expects’ to be provided.

The report says: “Our initial regulatory approach to mandatory TCFD disclosure focused on driving improvements in quality as companies tackled the new requirements… As practice becomes more established, it is more likely we will enter into substantive correspondence with companies where their disclosures do not meet our expectations.”

Support on climate reporting

For those looking for support on climate reporting, ICAEW’s Corporate Reporting Faculty has recorded two webinars aimed at those wanting information on how to get started. Both recordings are freely available to ICAEW members.

The team has also produced guidance on TCFD and related UK reporting regulations and a downloadable factsheet providing an overview of the UK’s Climate-related Financial Disclosure Regulations 2022.

Preparing for the reporting season

The ongoing uncertainties arising from matters such as inflationary pressures, the climate emergency and the war in Ukraine mean that the 2023-24 reporting season will not be without its challenges.

Annual factsheets from the Corporate Reporting Faculty, covering mandatory reporting requirements for accounting periods beginning on or after 1 January 2023 for UK GAAP and IFRS reporters are available to support members.

The faculty will also be hosting a webinar on 5 December 2023 on how to prepare for the reporting season. Register to attend.