In April 2014 the European Union (EU) agreed a Directive to harmonise the reporting of non-financial information by certain large undertakings and groups. In February 2016, the Department for Business, Energy and Industrial Strategy (BEIS) consulted on the best way to transpose the Directive, including how best to address the differences between the EU and existing UK frameworks and how to use the flexibilities that the Directive offered. BEIS has now published its response to that consultation.
For further background to the consultation, see our March 2016 newsletter article, available here. Key points to note from the response are that:
- the concept of a separate report was not strongly supported and will not be pursued,
- there will be no requirement to have non-financial information independently verified (although companies may choose to do so),
- companies not within the scope of the Directive will be able to choose to comply so as to avoid situations where changes in circumstances, such as varying sizes of work force, could result in companies having to use different reporting structures in different years, and
- there was support for the delivery of reports electronically - BEIS will therefore continue to work with the FRC to encourage innovative digital reporting.
The main findings are summarised in more detail below. To see the response paper in full, click, here.
Placement of information - there was interest from respondents in increased flexibility on where to place information (within the boundaries of the Directive) and BEIS states that it will continue to work with the Financial Reporting Council (FRC) to encourage companies to use the scope in the Directive for innovation and flexibility.
Separate Report – concerns were raised by respondents concerning the use of a separate report and BEIS has therefore confirmed that it will not pursue this further.
Scope of the Directive – BEIS considers that obliging companies outside the scope of the Directive to report under the new framework would go beyond the minimum requirements of the Directive, place a greater burden on these companies and effectively “gold plate” an EU requirement. Therefore, the Government will permit companies not subject to the Directive to voluntarily comply with it and will exempt those who do so from the comparable domestic provisions. This will avoid companies at the margins of the Directive’s scope incurring additional costs as a consequence of moving between regimes due to changes in their size from year to year.
Third party verification of non-financial information - the Government will not mandate independent verification of non-financial information. However, as now, companies may voluntarily seek independent verification of non-financial disclosures if they wish.
Current practice in electronic reporting - legislation already provides the option to send annual reports electronically. However, BEIS notes that it will continue to work with the FRC to encourage innovative digital reporting.
Gender Reporting - the Government will further explore various options with business and other stakeholders to consider how best to help companies make high quality disclosures to fulfil this requirement.
Other regulatory reforms – the consultation also sought views on various other reforms. BEIS will consider the comments and suggestions received and, where appropriate, explore any proposals for amendments with stakeholders in future consultations.