Chris Stamp: Nine months ago there were a lot of things for people to consider – strategic review, remuneration reporting and also thinking about how boards look at the annual report because of new requirements in the UK Corporate Governance Code. Can you explain the FRC’s role in these areas?
Anthony Appleton: The FRC has two main functions. One division which sets standards and the other is involved in monitoring and enforcement. We have quite a unique opportunity globally in that we can see what it means to be a standard setter and understand the conceptual issues but also be alive to the practical limitations by being involved in the enforcement and monitoring side.
I direct the Accounting and Reporting Policy side of the Codes and Standards division. That covers UK accounting standards and narrative reporting. A significant part of my role is trying to influence developments internationally. Deepa leads on the annual report related projects, including the recently issued Guidance on the Strategic Report.
The implementation period for the 2013 changes in regulations including those for the strategic report was relatively short. In line with the FRC’s due process we issued a consultation before publishing the final guidance. In the interim, this gave us an opportunity to hear about companies experiences of applying the regulations. At the moment we are consulting on the Corporate Governance Code. That consultation closes at the end of this month.
CS: A lot of companies have published annual reports and had AGMs. Are you looking at what’s been produced so far and evaluating it in light of the changes?
Deepa Raval: We’ve spent the last year talking to quite a few companies, my personal view is that in the first year it is quite hard to assess what the impact has been. In a year’s time we will consider a post-implementation review. My initial thoughts are that the new regulations have had a positive impact on the way companies report. A number of companies have restructured their reports bringing information that is important for investors to the fore in the strategic report. Other complementary information is often relocated to the back of the annual report or included online.
CS: The directors’ report has been raising some questions – what is the role of that report?
DR: I see the directors’ report as the repository for residual information required by law. It’s not that useful for investors and ideally I would like to see it being moved online, but we have some way to go on that.
CS: What is your view on remuneration reporting?
AA: It’s a bit disappointing to find that remuneration reports have grown significantly. Whilst remuneration is clearly an important issue for an annual report there’s a risk it becomes so heavily weighted to that one section that the whole idea of fair, balanced and understandable reporting is lost. One of the challenges that we face is a reporting environment where there are multiple regulators setting different requirements and that can change the focus.
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Ezine issue: July 2014