UK companies will be made to split up their annual reports and provide extra information tailored to non-expert readers, under radical proposals set out by the UK accounting watchdog.
In a discussion paper published on Thursday, the Financial Reporting Council said it was seeking responses to its ideas, which are designed to make corporate reporting “more agile” and relevant to “other stakeholders”.
Under the proposed changes, companies would be made to “unbundle” their annual reports, which research has found are too long and difficult for non-experts to understand. The regulator recommends splitting the information into a “network of interconnected reports”, serving different readerships.
In future, all companies would be required to produce a central and “stakeholder-neutral” business report that explains how they create long-term value. According to the FRC, this would be similar to a concise strategic report, including non-financial information alongside some key metrics.
In addition, companies would issue separate financial statements and a new “public interest report”, disclosing their impact on wider stakeholders, society and the environment.
Supplementary reports would contain investor presentations, individual business unit information and company data.
Announcing the proposals, Mark Babington, the FRC’s executive director of regulatory standards, said: “As the UK’s corporate reporting framework has evolved, annual reports have become a vehicle of convenience for ever-more information. However, this has undermined their purpose and usability . . . To build trust in business we need a modern corporate reporting system that is transparent, flexible and puts users of corporate reporting at its heart.”
News of the proposed shake-up follows two reviews of corporate reporting and auditing in the wake of high-profile accounting scandals at companies such as BHS, Carillion, and Thomas Cook.
Last year, former top Treasury official John Kingman produced a highly critical review of how companies are regulated. Donald Brydon, former chair of the London Stock Exchange, assessed the quality and effectiveness of audit.
In its document, the FRC stressed that its proposals were “consistent with the themes in the independent Kingman and Brydon reviews”. In particular, it said that addressing the interests of a wider audience beyond company shareholders and applying reporting principles to more than just financial statements were key elements of the Brydon review.
It also said that one intention of the Kingman review was to “promote brevity, comprehensibility and usefulness in corporate reporting”.
Richard Martin, head of corporate reporting at the Association of Chartered Certified Accountants, said the FRC’s discussion paper was welcome and timely following the two reviews.
“It’s very positive to see that the FRC’s definition of corporate reporting recognises the importance to inform . . . the wider stakeholders in addition to shareholders and investors.”
Accounting group EY said the FRC’s proposals to use new technology to deliver information would improve corporate communication.
“Technology presents an opportunity to do things differently to improve accessibility, while a more user-focused approach can improve the usefulness of reports,” said Hywel Ball, EY’s UK chair.
Responses to the proposals are being invited up until February 5.