Annual Reporting Checklist 2015 / 2016 published
Last week, Addleshaw Goddard published its Annual Reporting Checklist. The Checklist supports main market companies in the preparation of their 2015 annual reports and brings together all mandatory disclosure requirements and best practice recommendations that should be considered. This year, the Checklist focuses particularly on:
- statutory changes to the content requirements for an annual report;
- new regulatory changes to the disclosure requirements in the Financial Conduct Authority's Listing Rules and Disclosure Rules and Transparency Rules pertinent to reporting, including those precipitated by changes to the EU Transparency Directive;
- new risk-based recommendations under the Financial Reporting Council's (FRC) UK Corporate Governance Code;
- new regulatory guidance on narrative reporting, FRC observations and latest developments in corporate governance;
- key remuneration changes and evolving investor expectations in remuneration reporting;
- new audit-related disclosures for FTSE 350 audit committees and an update on the EU Audit Directive and Regulation; and
- updates on other key governance issues, including country-by-country reporting for extractive companies, the new modern slavery statement, payments policy reporting, enhanced gender diversity targets and gender pay reporting.
For further information, or to preview or purchase the Checklist – click here.
PLSA updates Governance Policy and Voting Guidelines
The Pensions and Lifetime Savings Association (PLSA) has published an updated edition of its Corporate Governance Policy and Voting Guidelines. The principal changes:
- underscore the importance that the PLSA ascribes to companies explaining to investors how the long-term value of its human capital is maximised and what associated strategic and operating risks exist in doing so. Where a risk materialised in the past year, the PLSA expect an annual report to clearly explain the company's response;
- confront the issue of "overboarding". In the same way as the Institutional Shareholder Services, the PLSA emphasise the crucial need for directors to have sufficient time and energy to fulfill their roles properly. To this end, shareholders are encouraged to be mindful of concurrent directorships of non-executives and chairs. For complex companies, it may be appropriate to vote against the (re)-election of a non-executive director who holds more than four directorships. Where a director chairs a number of key committees, a stricter view may be adopted, especially where an individual is a director of two or more companies in heavily regulated industries;
- require that companies should clearly signal at the earliest opportunity their intention to undertake a non-pre-emptive issue and engage in a meaningful dialogue with their shareholders, keeping them informed of issues related to an application to dis-apply their pre-emption rights. In return, shareholders should review each case made by a company on its own merits and decide on each case individually, using their investment criteria; and
- require a company to communicate, as soon as reasonably practicable after an AGM, how it intends to engage with shareholders in order to understand the reasons for any dissent, as well as acknowledging the existence of dissent in its AGM RIS announcement and disclosing in its next annual report the steps it has taken, or intends to take, to resolve the issue.
FRC to publicly tier compliance with the Stewardship Code
The Financial Reporting Council has announced that it intends to introduce the public tiering of signatories to the Stewardship Code (Code) in July 2016 in order to improve reporting against the principles of the Code and assist investors by helping them to judge how well their fund manager is delivering on its Code commitments. The FRC will adjudge signatories' reporting against the Code as being either:
- Tier 1 – where the FRC's reporting expectations in relation to stewardship activities have been met; or
- Tier 2 – where the FRC's expectations have not been met.
Firms will be contacted prior to any assessment being made public in order to allow them to make improvements.
GC100 and Investor Group: Directors' Remuneration Reporting Guidance remains unchanged
The GC100 and Investor Group (Group) originally published guidance in September 2013 to help remuneration committees address the new directors’ remuneration reporting requirements (Guidance). In December 2014, the Group published an update to the Guidance which provided supplementary guidance and clarification to promote best practice reporting (2014 Statement).
Having reviewed the Guidance together with the 2014 Statement and in light of experience over the 2015 AGM season and other developments, the Group has issued a statement (December 2015) that it has determined that the Guidance, as supplemented by the 2014 Statement, continues to serve its purpose effectively and that it will not be making any changes this year. However, the Group has stated that it is committed to undertake a full review of the Guidance and publish a timely update during 2016.
FRC letter to audit committee chairs: Key developments for 2015 Annual Reports
The Financial Reporting Council has written to audit committee chairs in larger listed companies summarising key developments and suggesting improvements for 2015 annual reports. The letter covers a number of issues including:
- Clear and concise reporting. Companies need to assess materiality of disclosures through the right "lens" and not to use materiality assessments to conceal errors or achieve a particular presentation.
- Risk reporting. Companies are encouraged to disclose how each risk specifically affects them and the steps they are taking to mitigate those risks. However, while investors do not expect to see a list of all risks, many consider it surprising that cyber security and risks associated with climate change are not reported more often as principal risks.
- Viability statements. Companies are reminded that such statements should cover a period "significantly longer than 12 months" and that directors should explain the period chosen, taking into account the circumstances of the company, in order to avoid making "boiler plate" statements.
Effective disclosure. The FRC highlight:
- the need to explain critical judgements and accounting policy choices, with particular focus on pension and tax reporting;
- the need for alternative performance measures to be clearly and consistently used; and
- investors' desire for improved dividend disclosure as stated in the recent Financial Reporting Lab Report.
- Digital communication. PDF is investors' preferred method for receiving and viewing annual reports and thus companies are encouraged to optimise PDF reports by "thinking screen first", simplifying the reporting structure, removing double page spreads and considering how images and columns of text are displayed.
- Quarterly reporting. Investors approve of the move away from quarterly reporting and have asked the FRC to encourage companies to focus when reporting outside of the annual report cycle on providing information which is of import to the longer term prospects of the company.
- FRC reporting reviews. The FRC intends to increase transparency in its own work by presenting its conclusions on the reporting of individual companies; letting companies know when a review has been completed and it has no substantive points to raise; and making public the names of those companies which have been subject to a review.
The FRC also wrote to smaller listed and AIM companies with regard to annual reporting in November 2015.