Following on from its discussion paper of June 2015 on improving annual accounts reporting, the Financial Reporting Council (FRC) has published a letter of advice on how to improve reports in areas of particular concern to investors.
The FRC states that investors value high quality reporting that is company specific rather than generic and which includes meaningful explanations. Investors expect:
- the strategic report to be clear, concise, balanced and understandable with a clear explanation of the company's business model and strategy setting out how principal risks and uncertainties are managed and monitored
- accounting policies to be clear and specific, particularly in relation to revenue recognition and expenditure capitalisation.Aggressive policies or policies out of line with similar companies cause investors concern
- a clear explanation of how the company generates cash flow and consideration of whether the classification of operating, investing and financing cash flows is consistent with the business model in the strategic report.
None of this is, of course, controversial, but it is worrying that the FRC should feel that the standard of reporting as such that it is necessary to raise these issues.
The FRC will be writing to larger listed companies with advice on the preparation of their annual reports in due course.
The FRC's letter, 'Year-end advice to preparers of annual reports' can be found here and the FRC press release here.