Companies need to ensure connectivity and consistency across the whole of the annual report and accounts and focus on clear, concise and understandable disclosures. That is the critical lesson to take from the Financial Reporting Council’s (FRC) Annual Review of Corporate Reporting 2023/24.

The Review sets out the FRC’s findings from its monitoring activities and expectations for the upcoming (2024/25) reporting season. Aimed at preparers, auditors and users of financial statements, the report highlights areas of good practice and where corporate reporting could be improved. 

Of 243 reviews undertaken (40% of which were FTSE 350 companies), substantive queries were raised with 115 (47%) companies; 26 were required to make a change to a significant aspect of their reporting. 

Gaps in reporting quality

While the overall quality of reporting of FTSE 350 companies has been maintained, the FRC found evidence of a growing gap in reporting quality between FTSE 350 and other companies (including main-market, AIM listed and large private companies). 

Although improvements were identified in several reporting areas, the FRC identified many recurrent issues. Impairment of assets and cash flow statements remain key areas of concern. 

A theme running through the highlighted issues was the need for consistency and connectivity. In response, the FRC encourages preparers to “take a step back and consider whether the annual report and accounts, as a whole, tells a consistent and coherent story”.

Top 10 issues

The top 10 issues that lead to substantive questions being raised are identified in the report. Impairment of assets continues to occupy the number one slot.

Provisions and contingencies have fallen out of the top 10 for the first time in more than five years, and queries relating to judgements and estimates – a longstanding top 10 issue – reduced significantly this year. Several issues, however, continue to generate queries, including cash flow statements, financial instruments, revenue and presentation of financial statements. 

While comparatively few issues were raised in respect of premium-listed companies, climate-related narrative reporting came into the top 10 for the first time. The FRC plans to publish a thematic review of UK Climate-related Financial Disclosures (CFD) in winter 2024/25.

Sally Baker, ICAEW’s Head of Corporate Reporting Strategy, says: “While we are pleased to see an improvement in the disclosure of provisions and contingencies, and judgements and estimates, it is disappointing to see other common issues arising year after year – particularly when some of the issues arising could be avoided by performing basic checks and building robust review processes into the preparation timeline.” 

ICAEW’s Corporate Reporting Faculty has dedicated factsheets on impairment of assets, available to all, for both FRS 102 and IFRS reporters. The faculty’s recently published guide on cash flow statements, highlighting common pitfalls and tips for review, and a factsheet on Climate-related Financial Disclosure Regulations are also available (accessible to ICAEW members and Corporate Reporting Faculty subscribers).

Good-quality corporate reporting does not mean more disclosure 

As well as the need for connectivity, a key message is that good-quality reporting does not necessarily require a greater volume of disclosure.

The FRC highlights the importance of a robust review process to identify and avoid common errors, and the need for clear, concise and company-specific disclosures about accounting policies. 

The report reinforces the continuing relevance of clear and consistent disclosures about the effect of risks and uncertainties on the company’s financial performance and position, key assumptions and forecasts. 

Narrative reporting was also noted as an area where concise disclosures, which do not obscure material information, are required.

Baker says: “As the saying goes, less is more. Preparers should focus on quality, not quantity. As well as providing clear, concise information, the theme of connectivity is key and will become more important as sustainability reporting requirements develop”.

Hosted by the Corporate Reporting Faculty, book your place on our webinar Preparing for the 2024/25 reporting season on 3 December 2024.

To find out more about the Corporate Reporting Faculty and to join, visit icaew.com/joincrf. Faculty membership is open to all; charges apply for non-ICAEW members.