FRC expects Brexit narrative within annual reports

BROACHING BREXIT within the annual report must be a key consideration for preparers, the UK’s accounting watchdog has stated.

The Financial Reporting Council (FRC) has issued guidance regarding the annual reporting of 1,200 large and smaller listed companies. The letter highlighted the key issues and improvements that can be made in the 2016 reporting season, with Brexit forming part of its expectations around a more formed narrative.

Paul George, FRC’s executive director for corporate governance and reporting, said: “Annual reports are the main source of information for investors who need to understand how the company is performing to allow them to judge the long-term prospects for their investment.”

In an era of cyber-risk, climate change and Brexit pose economic, social and environmental uncertainty, the FRC encourages companies to consider a broad range of factors when determining principal risks.

Paul George, added: “In the light of Brexit, it is imperative to promote strong investment in UK markets, and to do so there must be constructive engagement between investors and companies.”

Investors expect the relationship between IFRS or UK GAAP measures and any alternative performance measures used to be clearly explained. They also expect business model reporting to provide clarity of explanations of how the company makes money. Also a clear link between the business model and the revenue recognition policies to be disclosed. Finally, the dividend disclosures to detail how dividend policies operate in practice and how these policies may be impacted by risks.

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