FBU requirement ‘a positive innovation’

By Michelle Crickett, ICAS Director of Research

12 January 2016

ICAS research highlights that the new fair, balanced and understandable (FBU) requirement is regarded as a 'good thing'.

New ICAS research investigates the impact of the UK FBU requirement on corporate reporting and assurance and whether a move to ‘positive’ assurance on the front-half of annual reports is feasible and desirable.

The independent research report by Ian Fraser and Boram Lee, Fair, Balanced and Understandable: Enhancing Corporate Reporting and Assurance, says that given the response in the UK there may be scope for implementation of similar regulations in other national jurisdictions or by international regulators.

The FBU requirement, introduced by the UK Financial Reporting Council (FRC) in 2012 into the UK Corporate Governance Code, requires corporate boards to confirm that their annual reports are ‘fair, balanced and understandable’ and for external auditors to report by exception on this confirmation.

Professor Fraser will present the research findings at an ICAS breakfast discussion event Assurance: Where next? on 19 January in London.  This event, chaired by ICAS President Jim Pettigrew CA, will also debate the future direction of travel for assurance.  If you would like to attend please register online or email research@icas.com .

Main findings

  • Fair, balanced and understandable (FBU) viewed positively by both preparers and auditors.
  • Impact on content of corporate reports is relatively modest, but impact on presentation and ability of the annual report to provide a cohesive story is significant.
  • The term ‘understandable’ presents the greatest interpretive challenge.
  • No consensus on whether the FBU has enhanced the level of assurance provided on the front-half.
  • FBU provides auditors with ‘ammunition’ to challenge companies.
  • No clear consensus on the demand for ‘positive’ assurance.
  • Strong opinion that more junior auditors’ commercial awareness and understanding is inadequate.
  • A need for research on investors’ assurance needs and the reliance they place on the annual report.

Background to the research

Effective corporate reporting is essential to the efficiency of the capital markets but in recent years there have been significant concerns as to whether corporate reporting and the current levels of assurance are meeting the needs of investors.

Various initiatives in corporate reporting have resulted in the 'front-half' of annual reports gaining greater prominence than has traditionally been the case – including the need for the annual report as a whole ‘to tell the story’.  However, it remains the case that it is only the conventional financial statements (the ‘back-half’ of the annual report) that currently receive a ‘true and fair’ audit opinion.

In order to address this apparent dichotomy, ICAS commenced a programme of work investigating the scope of assurance on the narrative elements of the annual report and this new publication is the next stage in that programme.

Michelle Crickett, ICAS Director of Research, said: “The research demonstrates the success of the FBU requirement in the UK but questions remain unanswered in terms of investors’ assurance needs and whether there is a desire for more ‘positive’ assurance.  If there is such a demand, the profession will need to consider how it can respond to this request.

We look forward to a debate on these issues and more at the ICAS Assurance: Where next? event on 19 January 2016 in London.”


For more information contact: ICAS Head of Editorial Michael McGlinchey (+44 (0) 7799 583 409 / +44 (0) 131 347 0126.

About the research

This research was funded by the Scottish Accountancy Trust for Education and Research (SATER), now known as the ICAS Foundation, exclusively from the SATER funds. For further information contact research@icas.com.

About the authors

Ian Fraser is professor of accounting and Boram Lee is a lecturer in accounting, both at Stirling Management School, University of Stirling.


  • Audit and Assurance
  • Corporate and financial reporting
  • Research

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