FAQ UK NARRATIVE REPORTING: NEW REGULATIONS

FAQ
4 JULY 2014
UK NARRATIVE REPORTING: NEW REGULATIONS
The Financial Reporting Faculty answers your questions on the new UK regulations for
non-financial reports
The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 introduce some
important changes to non-financial reports prepared by UK companies.
1.
What are the new regulations about? .......................................................................................................... 2
2.
How does the strategic report differ from the current business review? ................................................ 2
3.
Are there any exemptions to the information required within the strategic report? .............................. 2
4.
Is there any guidance available on how to prepare a strategic report? .................................................. 2
5.
What disclosures are required for greenhouse gas emissions?.............................................................. 3
6.
Which parts of an organisation should be included when measuring greenhouse gas emissions?... 3
7.
How are greenhouse gas emissions measured? ....................................................................................... 3
8.
Are there any exemptions available on the reporting of greenhouse gas emissions? ......................... 3
9.
Can companies still opt to prepare summary financial statements? ...................................................... 3
10.
What is included in the supplementary material? ...................................................................................... 4
11.
Have there been any other changes? .......................................................................................................... 4
12.
Is an AIM company a quoted company for the purpose of these new regulations? .............................. 4
13.
When is the effective date? .......................................................................................................................... 4
1
1. What are the new regulations about?
The new regulations affect the information disclosed in the ‘front-end’ of a company’s
annual report. The main changes can be summarised as:
•
•
•
•
•
The replacement of the current business review with a separate strategic report
(excluding small companies, which continue to be exempt);
New disclosure requirements for quoted companies in the strategic report;
The introduction of the requirement for quoted companies to disclose information
on greenhouse gas emissions within the directors’ report;
The replacement of the option to provide summary financial statements with the
option to provide a strategic report with supplementary information;
The withdrawal of a number of current disclosure requirements within the directors’
report.
2. How does the strategic report differ from the current business review?
For most companies the content of the strategic report will not differ from that currently
required for the business review. However, there are differences in presentation. Unlike
the business review, which forms part of the overall directors’ report, the strategic report
will be presented as a separate standalone report and will require approval from the board
of directors.
For quoted companies additional information will be required. This includes:
•
•
•
A description of the group’s strategy and business model (although this is already
a requirement under the UK Corporate Governance Code 2012);
A breakdown at the financial year end of the gender split for directors of the
company and senior managers* and employees of the group;
Information on human rights issues (including policies and the effectiveness of
those policies) ‘to the extent necessary for an understanding of the development,
performance or position of the company’s business.’ It must be stated if the report
does not contain such information.
*A senior manager is defined as a person who has ‘responsibility for planning,
directing or controlling the activities of the company, or a strategically significant
part of the company, and is an employee of the company.’ In a group strategic
report, the breakdown of senior managers will exclude directors of the parent
company who are disclosed separately.
3. Are there any exemptions to the information required within the strategic report?
Yes, medium-sized companies will continue to be exempt from the requirement to provide
analysis using non-financial key performance indicators. Also, in line with the previous
regulations, exemptions are available for all companies in cases where the directors
believe that the disclosure of certain information, relating to impending developments
or matters in the course of negotiation, would be seriously prejudicial to the interests of
the company.
4. Is there any guidance available on how to prepare a strategic report?
Yes, in June 2014 the FRC issued a best practice statement, Guidance on the Strategic
Report, to assist companies in the preparation of their strategic report. The nonmandatory guidance is principles-based and encourages preparers to consider the
strategic report within the context of the annual report as a whole.
2
5. What disclosures are required for greenhouse gas emissions?
Quoted companies will be required to disclose, in the directors’ report, details of:
•
•
•
•
The annual quantity (in tonnes of carbon dioxide equivalent) of emissions of major
greenhouse gases arising from the activities for which the company is responsible
The annual quantity of emissions arising as a result of the purchase of electricity,
heat, steam or cooling by the company for its own use
The method of calculation used to measure the quantity of emissions
At least one ratio showing the company’s annual emissions in relation to an
appropriate financial indicator or business metric.
The company will need to state if the period to which the greenhouse gas emission
disclosures relate is different to that of the directors’ report. In addition, with the exception
of the first year, comparative figures are required for each of the disclosures of
greenhouse gas emissions.
Greenhouse gases are defined in section 92 of the Climate Change Act 2008.
6. Which parts of an organisation should be included when measuring greenhouse
gas emissions?
Quoted companies are required to measure and report the emissions arising from the
activities to which they are responsible. Therefore, in a group situation, it is not just the
parent company but the emissions of all the group entities that should be considered.
7. How are greenhouse gas emissions measured?
The Department for Environment, Food and Rural Affairs (DEFRA) has issued
some guidance in this area covering matters such as: determining the boundaries of an
organisation for the purposes of measuring greenhouse gas emissions; the period to be
covered; measurement of emissions; and the reporting of the results.
8. Are there any exemptions available on the reporting of greenhouse gas emissions?
Yes, some relief is available in circumstances where it is not practical for a company to
obtain the required information. This is clarified further within the DEFRA guidance which
states that companies should make ‘every reasonable effort to acquire all material data to
comply with the regulations.’ However, it also notes that circumstances may arise in which
it is difficult to ‘compile all the relevant information in a timely manner’, for example a
major restructuring process or acquisitions made in the period leading up to the
preparation of the directors’ report.
Where this exemption is taken, the company must state what information has or has not
been included in the directors’ report and why. DEFRA also advises that the company
discloses the steps being taken to obtain the necessary information.
9. Can companies still opt to prepare summary financial statements?
No, the option to provide summary financial statements has now been withdrawn and is
replaced with the option to provide a strategic report with certain supplementary material.
The Companies (Receipt of Accounts and Reports) Regulations 2013 (SI 2013/1973) sets
out the circumstances under which a company may send to members, in place of the
company’s full accounts and reports, a copy of the company’s strategic report with
supplementary material.
3
10. What is included in the supplementary material?
The supplementary information includes details of the auditor’s opinion on the annual
accounts, the auditor’s statement on the consistency of the strategic report and directors’
report with the annual accounts, a statement that the strategic report only forms part of the
company’s annual accounts and report, and details of how to obtain a full copy of the
annual report. Quoted companies will also be required to include the single total figure
table for directors’ remuneration.
11. Have there been any other changes?
Yes, some further minor changes have been introduced. Companies will no longer need
to disclose, within the directors’ report, information on:
•
•
•
•
The principal activities of the company or group
Charitable contributions
Policy and practice on payment of creditors
Asset values, ie where the market value of land differs significantly, in the opinion
of the directors, from the amount included in the balance sheet.
Other changes include:
•
•
Only public companies will be required to disclose details of the acquisition of
own shares
The current requirement for a quoted company’s business review to disclose details
of contracts or other arrangements which are considered essential to its business
has not been retained.
12. Is an AIM company a quoted company for the purpose of these new regulations?
No, an AIM company is not ‘quoted’. A quoted company is defined in section 385(2) of the
Companies Act 2006 as a company that is UK incorporated and whose equity share
capital is included in the official list for the purposes of the Financial Services and Markets
Act 2000, or officially listed in an EEA State, or admitted to trading on the New York Stock
Exchange or NASDAQ.
13. When is the effective date?
The regulations are effective for financial years ending on or after 30 September 2013.
Copyright © ICAEW 2014.
All rights reserved. This document may be reproduced without specific permission, in whole or part, free of charge and in any
format or medium, subject to the conditions that:
• it is appropriately attributed, replicated accurately and is not used in a misleading context;
• the source of the extract or document is acknowledged and the title and ICAEW reference number are quoted.
Where third-party copyright material has been identified application for permission must be made to the copyright holder.
icaew.com
As a world-class professional accountancy body, ICAEW provides leadership and practical support to over 140,000 members in more than 160
countries, working with governments, regulators and industry to maintain the highest standards.
Our members provide financial knowledge and guidance based on the highest technical and ethical standards. They are trained to challenge
people and organisations to think and act differently, to provide clarity and rigour, and so help create and sustain prosperity. ICAEW ensures
these skills are constantly developed, recognised and valued.
Because of us, people can do business with confidence.
Chartered Accountants’ Hall
Moorgate Place, London
icaew.com
T
F
E
+44 (0) 20 7920 8100
+44 (0) 20 7920 8533
[email protected]
4
TECPLN12483