The following update is relevant to – all those responsible for preparing annual reports, especially in corporates. On 11 October, the Financial Reporting Council (FRC) issued guidance to preparers of annual reports of around 1,200 large and smaller listed companies.

The letter highlights key issues and improvements that can be made to annual reports in the 2016 reporting season to help to foster investment in the UK.

Although this document is intended for companies, it contains some helpful observations which may have application across other sectors.

The FRC press release notes that: ‘The annual report provides an opportunity to communicate key information to investors about an organisation’s performance, strategy and future prospects.

The strategic report should therefore be presented in a user-friendly, clear and concise manner.

Furthermore, in an era where, for example, cyber-risk, climate change and Brexit pose economic, social and environmental uncertainty, the FRC encourages companies to consider a broad range of factors when determining principal risks and uncertainties facing the business and performing their analysis for the viability statement.’

The areas covered by the letter include:

• The strategic report
• Financial statements
• Remuneration reporting
• Audit committee reporting.

For the strategic report, perhaps the most important issue is that of the use of ALTERNATIVE PERFORMANCE MEASURES (APMS), which are often used to supplement information prepared in line with IFRS or UK GAAP accounting standards.

The FRC remind companies that the use of APMs should not be allowed to replace or obscure the standard information and that European Securities and Markets Authority guidelines on the use of APMs should be complied with. The letter also addresses business model reporting, where additional clarity is required.

There are also useful reminders about risk disclosure, especially in the light of Brexit, including the need to think more widely about the issues that may affect the company. Regarding viability statements, there is a reminder that companies should provide a clear analysis of why the chosen period was selected, how it is appropriate for the company and how the analysis leading to this outcome was undertaken.

On financial statements, and following their thematic study of tax reporting, the FRC have identified tax reporting as an area for improvement − particularly how companies account for material tax uncertainties. They have also suggested improvements in the disclosure of the operation of dividend policies and reminded companies of the future changes to IFRS that will become effective in the next few years.

On remuneration reporting, the FRC have commented that ‘investors would like more clarity and brevity in remuneration reporting’ and reference the revisions to the Directors’ Remuneration Reporting Guidance published by the GC100 and Investor Group in August 2016.

Finally, the FRC have indicated that ‘investors would like to see more informative reporting about the specific actions taken by the remuneration committee’. Their suggestions include matters communicated to the Committee by the auditors in relation to the financial statements and how these were addressed, as well as details of discussions relating to any engagement with the FRC’s Corporate Reporting Review team or the FRC’s Audit Quality Review team.

The FRC’s letter, with links to all of the documentation referred to, is available on the FRC website.