FRC Advice for preparing 2017/18 annual reports

18 / 10 / 2017

The Financial Reporting Council (FRC) published its advice on changes to reporting requirements and key areas where companies can make improvements when preparing annual reports for the 2017/18 reporting season.

We highlight some of the key findings of the FRC’s letter:

New accounting standards (IFRS 9, IFRS 15 and IFRS 16)

Companies should be making detailed, quantitative disclosures explaining the likely impact of the new standards on their reporting in the last set of financial statements before the implementation date.

Strategic report:

  • Non-financial reporting. New regulations implementing the EU Directive on non-financial and diversity information are effective for financial years beginning on or after 1 January 2017. The FRC is currently consulting on amendments to the Guidance on the Strategic Report to reflect the new requirements. The proposed amendments to the Guidance also look to improve the effectiveness of section 172 of the Companies Act 2006 and, in tandem with the government’s corporate governance reform, encourage companies to consider the broader drivers of value that contribute to a company’s long-term success.
  • Viability statements. In response to its review of FTSE 350 viability statements, the FRC advises companies to take into account other factors in addition to their medium-term business plan. Companies are encouraged to consider developing their viability statements in two stages – first to consider the prospects of the company over a period reflecting its business and investment cycles, and second to state whether they have a reasonable expectation that the company will be able to continue to meet its liabilities as they fall due over the assessment period, drawing a attention to any qualifications or assumptions.

Financial statement disclosures

  • Dividends. The FRC encourages further adoption of reporting on the capacity to pay dividends, particularly within the FTSE 250 where progress has been less significant.
  • Critical judgements and estimates. Investors rely on clear disclosure in this area to understand the impact of management’s accounting policy decisions. Information value can be improved by providing more granular information about a smaller set of judgements and estimates that had a significant impact on results and explaining why certain assets were subject to significant risk of material change.
  • Pensions. Continued low interest rates and the economics of defined benefit pension arrangements have increased the need for companies to improve the transparency regarding their pension arrangements, in particular, of the nature and risks to which the schemes expose the company.

A review of the disclosure of critical judgments and estimates and pensions conducted by the FRC will be published towards the end of the year.

The FRC’s report provides useful guidance for anyone preparing annual reports, in particular audit committee chairs and finance directors.

For further information please contact Marlies Braun at