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Article:

FRC publishes guidance on clear and concise narrative reporting

18 January 2016

In December 2015, the FRC published Clear & Concise: Developments in Narrative Reporting, which includes insights and suggestion to help companies achieve clear and concise reporting and also provides an overview of developments in narrative reporting. It also includes a study of the influence of the FRC’s Guidance on the Strategic Report since its publication in 2014.

The report notes that investors have welcomed the recent changes to the annual report, which have resulted in it being a more cohesive, communicative document, with better linkage between related information and more focus on clear and concise reporting. They highlight the importance of clear presentation of information, indicate that they generally find the use of diagrams and charts to summarise information helpful and stress the importance of clear cross-referencing.The report highlights a number of areas on which companies might concentrate in order to improve the way in which they communicate the information contained in their annual reports so as to make them more accessible. These include ensuring that the annual report:

  • Is drafted with a focus on investors’ information needs
  • Is fair, balanced and understandable, explaining clearly and concisely the potential effects of any unfavourable circumstances and the steps being taken to mitigate them as well as the positive aspects of the business’ performance
  • Includes information on the medium to long-term expectations of the company, providing the context needed for longer-term investment decisions
  • Explains the nature of any linkages between pieces of information in different parts of the annual report rather than simply highlighting the location of related material
  • Does not include boilerplate language which investors are unlikely to find informative and can sometimes obscure useful information.

Improving your strategic report

The report also highlights ways in which companies can improve the information contained in their strategic report, including ensuring that:

  1. The business model description explains how the company generates long-term value; identifies the company’s main revenue streams; and highlights the key relationships, resources and other inputs that enable the company’s successful operation
  2. Descriptions of business strategy set out strategic objectives for both the short and longer-term; summarise the actions that will be taken to implement the strategy; explained how progress will be measured over time (including the disclosure of qualitative and quantitative targets); and link strategy to the company’s business model, key performance indicators (KPIs), principal risks, market trends and financial performance for the year
  3. Principal risks and uncertainties include only those that have a high likelihood of occurrence, or have the potential to have a significant effect on the entity
  4. Trends in KPIs are explained and linked to the information on general trends in the markets in which the company operates. Where non-GAAP financial measures are quoted, a clear reconciliation and explanation of adjustments to equivalent measures calculated in accordance with GAAP should be given, including why certain items have been excluded
  5. Environmental, employee, social, community and human rights matters (EESCH matters) are discussed to the extent that they are likely to affect the company’s future performance and are consistently reported throughout the annual report.

Read the full guidance at Clear & Concise: Developments in Narrative Reporting.

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