FRC 2023/24 Annual Review of Corporate Reporting

The Financial Reporting Council (FRC) has published its Annual Review of Corporate Reporting. The report sets out the key themes arising from the FRC’s ongoing monitoring activities and their key messages for companies ahead of the 2024/25 reporting season.

As businesses prepare for the 2024/25 reporting season, the FRC’s findings offer invaluable guidance, pinpointing the key themes and challenges faced by companies today.

Key issues from reviews completed in 2023/24

1. Impairments

Impairment of assets was again the most common issues and causes of restatement identified by the FRC. Several queries related to how goodwill had been allocated to cash generating unit’s (CGU’s), particularly in respect of e-commerce and when there had been change in allocation methodology. In the period under review, four companies were required by the FRC to restate their parent company financial statements to recognise an impairment of investments in subsidiaries, particularly when it was unclear whether the parent company’s impairment testing considered the value of loans receivable from group companies.

What to consider: Ensure that your impairment testing methodology complies with IFRS, with particular focus on ensuring that that effect of tax is consistently reflected in discount rates and projected cash flows, and that forecasts for value-in-use reflect the current condition of assets. Impairment disclosures should explain the key inputs and assumptions, including explaining the sensitivity of recoverable amounts to reasonable possible changes in assumptions. Finally, impairment reviews and their related disclosures should reflect and be consistent with information elsewhere in the annual report and accounts. The FRC expects companies to consider related guidance previously issued, details of which can be found in our FRC thematic review of discount rates and impairment disclosure for non-financial assets pages.

2. Cashflow statements

Cashflow statements are one of the most common reasons for a restatement following an FRC review, with the most frequent issues emerging due to the classification of cash flows within the cash flow statement. This includes classification of cashflows related to acquisitions, settlement of debt relating to acquisition of a subsidiary classified as an investing cash flow and contingent remuneration paid to employees of an acquired business classified as investing, rather than an operating cash flow. Further matters raised by the FRC comprised of material inconsistencies in reported cashflows between amounts or descriptions in the cash flow statement and other information in the reports and accounts, for example for acquisitions. The FRC also identified non-cash transactions, for example acquisition of a subsidiary via a share for share exchange, incorrectly included in the cash flow statement.

What to consider: Ensure classification of cash flows, and cash equivalents comply with the relevant definitions and criteria in the standard and reported cash flows are consistent with information reported elsewhere in the report and accounts.

Further guidance is provided in the previous FRC thematic review of cashflow statements page.

3. Revenue

The FRC raised more substantive queries on revenue recognition and related disclosures this year, largely relating to the adequacy of related accounting policy and significant judgement disclosures. This included lack of disclosure about how the entity determines whether the company was acting as principal or agent, lack of explanation of the nature of significant revenue streams and accounting policies applied, lack of disclosure of revenue by class of business or geographical market and inconsistencies between deferred revenue and other amounts disclosed within the financial statements.

What to consider: Provide sufficient information for all significant revenue streams including the specific accounting policies, the timing of revenue recognition, the basis for recognising revenue over time and methodology applied. Companies should ensure that they disclose and explain significant judgements relating to revenue recognition.

Whilst these issues apply to companies reporting under UK-adopted IFRS, similar considerations will soon apply to companies reporting under UK GAAP once the amendments to FRS 102 are effective from 1 January 2026.

FRC sets expectations for the 2024/25 reporting season

The FRC has set significant expectations as businesses approach the new reporting season. The FRC priority sectors for 2024/25 include retail, construction and natural resources, which are considered higher risk for corporate reporting and audit due to economic or other pressures.

All companies should ensure that they consider whether their accounts and annual report as a whole tells a consistent and coherent story throughout. The focus should be on the disclosure of information that is clear, concise and understandable whilst including all material and relevant information.

Narrative reporting

Companies need to ensure that their narrative reporting complies with the applicable reporting requirements. The Strategic Report should include a fair, balanced and comprehensive review of the company’s development, position, performance and future prospects. Companies in scope of climate related reporting should ensure that they comply with the relevant requirements, ensuring disclosures are concise and material information is not obscured. 

Risks and uncertainties

Disclosures relating to risks and uncertainties should be clear and consistent for users to understand the positions taken within the financial statements. This includes impairment, financial instruments, income taxes and fair value measurement.

Pre-issuance checks

A sufficiently robust review process will identify common technical compliance issues. This should include ensuring that the accounting policies are clear, including revenue recognition. Cash flow statement presentation classification and presentation should be reviewed, in addition to classification of current and non-current balances.

We can help you prepare for the 2024/25 reporting season

We have a team of accounting and financial reporting experts experienced in UK GAAP and IFRS to help our clients understand and navigate the ever-changing financial reporting landscape and identify possible opportunities and risks.

Our fully tailored service covers all your financial reporting needs, such as dealing with complex transactions and auditor queries, preparation of documentation to support accounting treatment in your financial statements, completing disclosure or pre-issuance checks, or preparing your annual report and financial statements.

For further information, or if you would like to discuss how we can support your financial reporting needs, please get in touch with Andy Ka, Lou Ward or your usual RSM contact.