The FRC has issued a letter to Financial Directors and Audit Committee Chairs of listed companies outlining key changes and suggesting improvements to UK financial reporting.
Key points for companies to consider include:
Impact of new standards
- IFRS 9, IFRS 15 and IFRS 16 are soon to be implemented. The FRC is expecting to see quantitative disclosures relating to the likely impact of these new standards on an entity’s financial statements, particularly for IFRS 9 and IFRS 15 which are effective from 1 January 2018.
- New regulations require certain large companies to provide enhanced disclosures in respect of the environment, employees, social matters, respect for human rights and anti-corruption and anti-bribery matters. The FRC has published a factsheet to assist companies.
- Relationships and linkages between information (eg KPIs and executive remuneration) should be clearly explained and the strategic report should help members assess how directors performed their duty to promote the success of the company. See The Guidance on the Strategic Report for more help.
- Disclosures should reflect the entity’s latest analysis of the impact of Brexit on their business including the specific nature of the likely risks.
- Boards should take note of ESMA’s guidelines on Alternative Performance Measures.
- Viability statements should cover a period reflecting the company’s business and investment cycles (three years is too often the default for companies) and should clearly explain the underlying analysis that supports the statement.
Financial statement disclosures
- Amendments to IAS 7 ‘Statement of Cash Flows’ (effective for periods beginning on or after 1 January 2017) require disclosure of changes in a company’s financing obligations over the period.
- Companies are encouraged to report dividend policies, the level of distributable profits/ reserves and the capacity to pay dividends, including the extent to which profits can be distributed by subsidiary companies and the extent of any restrictions.
- With regards critical judgements and estimates, generic and boilerplate disclosures should be removed and replaced with more granular information about a smaller set of judgements and estimates.
- Pension disclosures should provide sufficient transparency of the nature and risks to which the schemes expose the company, including informative explanations of deficit funding arrangements, risk management strategies and scheme assets.
- Better disclosures about reliance on invoice discounting arrangements is encouraged.
- Clear disclosures on the assumptions and estimates made in business combinations are imperative as they can pose unusual and complex accounting questions.
For further information please speak to your usual RSM contact.