Our Corporate Governance and Financial Reporting Expert Groups contributed to our response on the FRC's draft amendments to Guidance on the Strategic Report – Non-financial reporting.
Although we welcomed any effort to provide proportionate guidance improving narrative reporting, we questioned whether the term 'best practice' was the most appropriate term to use. We suggested that the FRC principally uses the phrase "encouraged content elements" instead.
We supported the enhancements that have been made to Sections 4 and 7 of the Guidance to strengthen the link between the strategic report and directors’ duties under Section 172. However, we stressed that the inclusion of more emphasis on directors’ duties under Section 172 should not induce more boilerplate disclosures. We commented that a company should focus on what it has done in the previous reporting year and what it intends to do in the future, not on repeating requirements.
With respect to how the Guidance could encourage better linking of information in practice, we commented that asking companies to look beyond the strategic planning horizon for factors that might have an effect on the long-term success of the business – as set out in paragraph 6.14 – places a disproportionate burden on small and mid-size companies, as they would be uncertain about how far ahead they are expected to be looking in order to prepare the disclosures in their strategic reports.
Regarding whether the draft amendments give sufficient yet proportionate prominence to the broader matters that may impact performance over the longer term, we commented that the Guidance should provide more clarity as to what is meant by the 'impact' in the context of the overall purpose of the strategic report.