From now, there will be added focus on communicating clear, key messages in Narrative Reports. The Financial Reporting Council (FRC) feels that in recent years Narrative Reports have become complex and compliance driven, and as a result there has been a lack of focus on quality.
Outlined below are the changes to narrative reporting; whether it be new content that should be added into your reporting structure or elements that should be removed. We also take a look at the FRC’s guidance for the format your reporting should take
In addition to the Director’s Report, companies will now also be required to prepare a Strategic Report. This will be separate from the Director’s Report and will largely mirror the current business review. It will include the following content:
- A description of the company’s business model and strategy
- A breakdown of the sex of company directors, senior managers and employees
- An outline of social and community issues, as well as human rights issues in relation to the development of the performance of the business
Rather than adding more content into the Director’s Report, items have been removed, which are:
- Information on principal activities
- Information on charitable donations
- Disclosure of information on acquisition of own shares (private companies only)
- Information on contractual arrangements, which are essential to the business of the company
- Asset values
- Creditors’ payment policy.
For your 2014 AGM, you will need to produce a directors’ remuneration report in the new format. The remuneration policy and implementation policy will also need to be put to your shareholders. All companies must have successfully sought approval for remuneration policy no later than the start of the second financial year to begin after the new legislation comes into force. This report will be subject to a binding vote through an ordinary resolution and where it is not passed, the directors will need to retain the previous policy. The Director’s Remuneration Report should contain:
- A statement by the Chairman of the remuneration committee
- A Remuneration Policy, which takes into account current and future remuneration policy, to be produced at least once every three years
- An Implementation Report, which will contain details of how the Remuneration Policy was implemented in the previous year. This should be updated annually and is subject to an advisory vote.
In order to improve the quality of Narrative Reporting, the Financial Reporting Council (FRC) published a report in October 2012, outlining guidance for improved reporting measures. Companies are encouraged to prepare their report and accounts with these principles and sentiments in mind, with particular focus on the annual report as a key communication tool that needs to be clear and consistent. The guidance sets out the following suggestions to improve Narrative Reporting:
- Relevant information that meets the needs of shareholders is presented in the Strategic Report
- Companies should be innovative in how they draft their annual reports, presenting narrative in a way that enables them to best tell their story, whilst remaining within the regulatory framework
- Promote greater cohesiveness in the annual report through improved linkage between information within the strategic report and in the rest of the annual report.