ICAS sets out its corporate reporting vision to the FRC
ICAS has called for a rationalisation of the annual corporate reporting package for listed companies.
The recommendations are in response to the Financial Reporting Lab’s Framework for Future Digital Reporting and the FRC Discussion Paper on the role of Auditors and Preliminary Announcements.
Why the need for reform?
Preliminary announcements and the summary results they contain drive investor sentiment and share price movements. The subsequent issue of annual reports can often be overlooked by investors even though these contain critical information together with a long form audit report on the financial statements.
Therefore, investors are potentially making decisions on the basis of incomplete information focused more on the short-term financial results and not on the longer-term picture provided by the annual report and, in particular, the Strategic Report.
We believe that, rather than focusing on preliminary announcements in isolation, the FRC should take a more holistic approach – first by consideration of the whole of the annual reporting sequence and package, and then to the expression(s) of assurance on this.
We think that there are synergies which could be obtained for preparers and auditors from rationalising the annual reporting package and utilising technological advancements, and that there are benefits for investors from a more cohesive structure for annual reporting and from clearer expressions of assurance from auditors.
The full extent of some of our proposals would require changes to the legislative framework and this might only be achievable over the medium term. However, it is important to establish such a vision to provide direction to the work of the profession and the FRC, and our engagement with stakeholders.
Core-and-more model proposed
We are calling for the restructuring of the annual report package along the lines of a core-and-more model:
- The amalgamation of the Strategic Report into the Preliminary Announcement, together with the inclusion of other key information which is of critical importance to investors and other users - the “core” report;
- The other detailed reports which make up the existing annual reporting package - the “more” reports - should be published on the company’s website, fully searchable, and cross-referenced from the core report and to each other.
- The “more” reports would include the financial statements; the corporate governance statement; environmental and corporate responsibility reports; and any other reports.
ICAS’ views are informed by a number of previous projects, the resulting reports from which are available on the ICAS website:
- Making Corporate Reports Readable (2010)
- The Future of Assurance (2010)
- Making Corporate Reports Relevant (2012)
- Balanced & Reasonable: A Discussion Paper on the Provision of Positive Assurance on Management Commentary (2013)
- Towards Transparency (2015)
ICAS hopes to explore how to operationalise the core-and-more model in a user-led joint project with the CFA Institute later in 2017.