Practical Law: Emerging trends from 2015 reporting and AGM season

Legal information provider, Practical Law, has published an update of emerging practice following an analysis of the annual reports and AGM notices of 208 of the FTSE 350 companies that have published so far this year. From its review, Practical Law has identified that:

  • Pre-emption disapplication: 20% of those companies reviewed that published their AGM notices after the date on which The Pre-Emption Group published its revised Statement of Principles have sought to take advantage of the new flexibility for companies to undertake non-pre-emptive issues for cash in connection with acquisitions and specified capital investments.
  • Remuneration Policies: 21% of the companies reviewed have sought approval  of their directors' remuneration policies for the second consecutive year.
  • Viability statement: One company, Lancashire Holdings Limited, has early adopted the 2014 UK Governance Code recommendation to include a long-term viability statement in its annual report. As noted at our recent Company Secretaries' Forums, we are also aware that Derwent London plc has included such a statement.

FRC: Lab Report on digital communication

The Financial Reporting Council's (FRC) Financial Reporting Lab has published its latest Lab Report, entitled 'Digital Present'. The report draws together investors' views on digital communication used by companies in the corporate reporting process. The Lab's notable findings include:

  • a reaffirmation that the annual report and its contents are of paramount importance to investors and that PDF is investors' preferred format for digital reports given its search functionality;
  • that PDF offers a range of ways to blend the best of paper and digital formats;
  • that companies could make better use of PDFs by focusing more on their on-screen presentation and by optimising their search functionality;
  • that digital communications are of most interest to investors when they bring new information to investors’ attention while avoiding duplication.

The FRC's report also shares a number of practical suggestions on how companies can improve their digital corporate reporting across a range of communication channels, tools and PDF annual reports.

FRC: Improving smaller listed and AIM company reporting

The FRC has launched a programme of measures to help smaller listed and AIM companies improve the quality of their corporate reports. This follows concerns expressed by the FRC over a number of years at the high number of poorer quality annual reports produced by such companies as compared with their larger counterparts. In particular, the FRC has published a discussion paper which sets out its findings, conclusions and proposals to drive up the standard of reporting. Proposals include:

  • Reduced disclosures: promoting options for reduced disclosures against IFRS; 
  • Annual reminders: providing annual guidance to boards of smaller listed and AIM companies on the current issues, areas of focus for investors and common errors;
  • Greater engagement: encouraging more participation by smaller companies and their investors in the practical work of the FRC’s Financial Reporting Lab to identify ways to improve the quality of corporate reporting; and
  • Addressing resource: discussing with the London Stock Exchange and the UKLA ways to ensure that companies understand the importance of, and have adequate financial reporting resources to meeting, their reporting obligations and providing practical guidance to audit committees and boards on evaluating the adequacy of a company’s financial reporting function and process.

The FRC hopes that the paper will raise awareness of the challenges faced by smaller companies and facilitate a more coherent and co-ordinated response. Comments and feedback are invited by 31 July.

FRC: Practice aid for audit committees 

In 2012, the UK Corporate Governance Code introduced a provision that a premium listed main market company's audit committee report should include an explanation as to how the committee has assessed the effectiveness of the external audit process. In response to a request for guidance in this area, the FRC has issued a practice aid to assist audit committees in evaluating audit quality in that assessment.  
  
The practice aid sets out a number of issues of which audit committees may wish to take account when designing or updating their own assessment processes.  The broad framework it sets out focuses on:

  • Assessment overview: highlighting factors that audit committees could consider when making their assessment and steps they could take in doing so;
  • Inputs: providing an overview of inputs, support and sources of evidence that might inform the assessment
  • Judgments: highlighting key professional judgments the auditor makes during the audit and how audit committees might assess them; and
  • Other considerations: including the skills, character and knowledge, mindset and culture and quality control demonstrated by the auditor.

The aid also sets out practical suggestions on how audit committees might tailor their evaluation in the context of the company’s business model and strategy, its risks and the perception of the reasonable expectations of the company’s investors and other stakeholders.