We held a small and mid-size quoted company roundtable with the Financial Reporting Council (FRC) on 1 October to discuss aspects of narrative and financial reporting that are complex for small and mid-size quoted companies and to exchange ideas on how to improve reporting.
The event focused on two projects that the FRC is carrying out in order to improve corporate reporting:
- Clear & Concise Reporting – a project to address some of the common criticisms about the quality of communication in annual reports such as the use of boilerplate or disclosure of immaterial information. (The Financial Reporting Lab has produced a report on this with practical examples to cut clutter and improve reporting).
- Smaller Listed and AIM Company Reporting – a project to evaluate and plan how it might assist smaller listed and AIM companies to address the quality of their reporting so as to improve confidence in the integrity of their financial statements and of the market as a whole.
Company directors heard from the FRC about these two projects, which stressed that they are keen to understand the challenges that small and mid-size quoted companies face when producing their annual reports and accounts.
Gervais Williams, Managing Director of Miton Group plc and an active small and mid-size quoted company investor, then spoke about what he likes to see in companies' annual reports and accounts, noting that reports shouldn't be driven by disclosures as that may prevent the businesses story from coming through.
Following the opening speakers, Alan Newman, CFO of YouGov plc and board member of the Quoted Companies Alliance, then chaired an open discussion, where directors highlighted the areas of reporting that they found difficult. Some issues raised were:
- Increased amount of disclosure on remuneration and whether this has added anything to reports
- The length of audit committee reports and the inclusion of boilerplate disclosures
- Derivatives disclosures and how it is difficult to get to the meaning of them
- The length of financial instruments disclosures (especially when companies have very few instruments, but still end up with pages of disclosure on this)
- Fair value accounting and the subjectivity of share-based payments
- Whether the viability statement will add anything to a company's annual report and accounts
- Materiality and how there are always differing opinions on what is material
One suggestion that came out of the discussion was that the FRC should look into producing a 'heatmap' that highlights which parts of/disclosures in an annual report and accounts gets read by investors, as a way of determining how to improve corporate reporting.
The FRC will be using the feedback from the event in their projects. If you are interested in getting involved in feeding more comments into the FRC, please email us.