Findings from the FRC’s Annual review of corporate reporting 2023/24

The Financial Reporting Council (FRC)’s Annual review of corporate reporting provides information relevant to preparers and auditors, investors and other users of corporate reports and financial statements, and wider FRC stakeholders.

The 2023/24 report (September 2024) is divided into three sections: Highlights; findings in greater depth; and appendices. The appendices include detailed data providing transparency about the FRC’s monitoring activities and outcomes, detailed findings from priority sector focused work, a summary of the upcoming changes to reporting requirements, and an overview of the scope of the work of the FRC’s Corporate reporting review team.

The FRC’s highlights from the review are as follows:

• The quality of FTSE 350 reporting is maintained with some evidence of the gap in quality between FTSE 350 reporting and other companies widening.
• There is a continued need for improvement in relation to the impairment of assets and statements of cash flow.
• The clear and consistent disclosure of uncertainties, risks and assumptions remains an area of focus for the FRC.
• Climate-related reporting is becoming more well established, but the scope of this reporting is widening.
• Good quality reporting does not necessarily require a greater volume of disclosure.

While companies falling within the scope of the review are FTSE, AIM listed and large private companies, these findings will help the preparers and auditors of other companies to focus in on potential areas for improvement.

In addition to reflecting on its findings for 2023/24, the FRC also sets out its key expectations for 2024/25.

Detailed recommendations arising from the FRC’s headlines

The FRC’s recommendations are cross-referenced to full IFRS Accounting Standards and the Financial Conduct Authority (FCA)’s Listing Rules. So, in interpreting these recommendations to the circumstances of a particular company, preparers and auditors should refer to the relevant standards and company law requirements.

Presentation of financial statements

Companies should ensure that:

• Company-specific material accounting policy information is clearly disclosed [IAS 1.117].
• Disclosures on going concern and related matters are consistent with information elsewhere in the annual report.
• The financial statements are reviewed carefully to avoid common areas of non-compliance with IAS 1 ‘Presentation of financial statements’, including the classification of receivables as current or non-current [IAS 1.66] and the presentation of material impairment losses in relation to financial assets on the face of the income statement [IAS 1.82(ba)].

Impairment of assets

Companies should ensure that:

• They provide adequate disclosures about the key inputs and assumptions used in their impairment testing, including justifying the use of financial budgets/forecasts for periods longer than five years [IAS 36.134; IAS 1.125].
• The effect of tax is consistently reflected in the discount rates and projected cash flows used in value in use calculations [IAS 36.51], and the forecasts used for value in use calculations reflect the asset in its current condition [IAS 36.44].
• Impairment reviews and related disclosures appropriately reflect information elsewhere in the report and financial statements about events or circumstances that are indicators of potential impairment, as well as information about the company’s business operations and principal risks.
• They explain the sensitivity of recoverable amounts to reasonably possible changes in assumptions where required [IAS 36.134(f); IAS 1.129].

Statements of cash flow

Companies should ensure that:

• The classification of cash flows, as well as cash and cash equivalents, comply with relevant definitions and criteria in the standard and cash flows are appropriately netted in both the group and (where applicable) parent company cash flow statement [IAS 718.6; IAS 7.21].
• Amounts and descriptions of cash flows are consistent with those reported elsewhere in the report and financial statements.
• Non-cash investing and financing transactions are excluded from the statement and disclosed elsewhere if material [IAS 7.43].

Judgements and estimates

Companies should ensure that:

• All significant judgements have been described in appropriate detail, including explanations of the uncertainties involved [IAS 1.122].
• Disclosures of significant estimates are clearly distinguished from other estimates and contain sufficient company-specific information. A list of uncertainties is not sufficient [IAS 1.125].
• Sufficient information is provided in order for users to understand the significant judgements and estimates, for example disclosure of sensitivities and the range of possible outcomes [IAS 1.129].

Taskforce on Climate-related Financial Disclosures (TCFD) and climate-related narrative reporting

Companies in scope of the relevant requirements should ensure that:

• They explain the extent of compliance with the comply-or-explain TCFD framework, the reasons for any areas of non-compliance and the steps being taken to address these areas together with the expected timeframe in which compliance will be achieved [Listing Rule 9.8.6R.8; Listing Rule 14.3.27R]
• Disclosures are concise and company-specific, sufficient detail is provided, and material information is not obscured.
• It is clear how any material impact of climate change has been reflected in the financial statements.
• Mandatory Companies Act 2006 Climate-related Financial Disclosure (CFD) requirements are met and not given on a comply-or-explain basis. Companies who are also required to provide TCFD related disclosures under the Listing Rules should consider the differences between the requirements such as the location of disclosures.

Recommendations on the following additional topics are also included in the FRC’s report:

• Financial instruments.
• Revenue.
• Strategic report and other Companies Act matters.
• Income taxes.
• Fair value measurement.

Key FRC expectations for 2024/25 annual reports and financial statements

Pre-issuance checks

Companies should have a sufficiently robust review process in place to identify common technical compliance issues. The review process should include checking that clear, company-specific accounting policies are included for key matters such as revenue recognition.

Risks and uncertainties 

Disclosures about uncertainty and risk should be clear and consistent and sufficient for users to understand the positions taken in the financial statements. The FRC frequently asks companies to enhance their disclosures when they fail to comply with requirements in these areas.

Narrative reporting

Companies should ensure their strategic report includes a fair, balanced and comprehensive review of their development, position, performance and future prospects. Care should be taken to comply with the applicable climate-related reporting requirements, ensuring disclosures are concise and that material information is not obscured.

Take a step back and consider the annual report and financial statements as a whole

The annual report and financial statements should:

• Together, tell a consistent and coherent story throughout.
• Be clear, concise and understandable.
• Include all material and relevant information, including information not specifically required by standards, where it is necessary for users’ understanding.
• Include only material and relevant information.

Visit the FRC’s website to read its full Annual review of corporate reporting and to watch its related webinar.