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Julia Irvine 12 Apr 2017 02:59pm

FRC tells investors what to look out for in 2017

Financial Reporting Council (FRC) chief executive Stephen Haddrill has written to institutional investors ahead of the 2017 shareholder meeting season, advising them on what recent developments to look out for in listed companies’ annual reports and accounts

He is also keen to encourage them to engage with companies both “to provide a steer on what information they believe is relevant and to challenge where reporting falls short of expectations”.

Among the areas Haddrill highlights in the letter are alternative performance measures (APMs) which are used to report performance.

He points out that this will be the first year the APM guidelines from the European Securities and Markets Authority (ESMA) apply to annual reports, and investors should expect to see disclosures in the strategic report that give a clear and complete understanding of the APMs presented, how they are calculated and why they are useful.

Where relevant, reconciliation to amounts present in the financial statements should be given.

Companies should also be using the strategic report to explain clearly why they have selected their particular period of assessment for their viability statement, what qualifications and assumptions were made and how the underlying analysis was performed.

The strategic report should make clear the impact of Brexit on the company’s business in the short term. “As the economic and political effects are developed and become more certain in the medium to longer term, we would expect boards to provide increasingly company specific disclosures with, ultimately, quantification of the effects.”

Other areas Haddrill focuses on include better disclosure in the financial statements of tax provisions, dividends and the impact of low interest rates on the valuation of long-term assets and liabilities.

He says that there is room for improvement in the disclosure of accounting policies, particularly in relation to revenue recognition, while companies should be providing information on progress towards implementation of the three major accounting standards – IFRS 15, Revenue from Contracts with Customers, IFRS 9, Financial Instruments, and IFRS 16, Leases – that will be coming into operation in the next couple of years.

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