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FRC’s Thematic Review: Reporting by the UK’s largest private companies
Publication date: 02 Feb 2024 (updated 07 Feb 2024)
uk In brief UK2024-07
At a glance
The FRC has issued its Thematic Review: Reporting by the UK’s largest private companies. The review contains a summary of the FRC’s key findings that companies and their auditors should take into account for future annual reports.
What is the issue
The FRC concluded that the quality of reporting was mixed, particularly in terms of how clearly companies explained material matters that were complex or judgmental. The FRC review includes consideration of:
- the strategic report.
- the presentation of primary statements including the cash flow statement and supporting notes.
- revenue.
- judgements and estimates.
- provisions and contingencies; and
- financial instruments.
In the FRC’s opinion, many of the issues identified could have been avoided if a sufficiently critical review of the annual report and accounts had been conducted prior to finalisation. A similar point was made in the Annual Review of Corporate Reporting 2022/23, published last October. This review of the annual report and accounts should include taking a step back to consider whether the report as a whole is clear, concise and understandable, whether it omits immaterial information, and whether additional information is necessary to understand particular transactions, events or circumstances. It should also include a review for internal consistency and more detailed presentation and disclosure matters.
The FRC’s main findings were:
- Strategic reports should clearly explain the elements of development, performance and position that are key for an understanding of the company. Where relevant, there should be a description of how the business fits into a wider group structure.
- There are too many instances of boilerplate accounting policy disclosure. The FRC has long called for companies to make more entity-specific accounting policy disclosures, and in this thematic review it emphasised the importance of clear policies with respect to revenue, explaining the nature of each significant revenue stream, the timing of recognition, and how the value of revenue was determined. Similarly, disclosures of judgements and estimates should include detail of the specific judgement involved and clearly explain the rationale for the conclusion.
- The disclosure of financial instruments was also considered to be too boilerplate, describing the nature of risks without fully explaining why they are relevant.
- In some cases, the FRC expressed concern that the level of detail provided on the nature of provisions and the associated uncertainty was below the level expected.
The full report, which includes a number of good practice examples, can be accessed here.
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