The FRC’s Annual Review of Corporate Reporting acts as a benchmark for the quality of annual reports. The 2025/26 review covered 248 reports and accounts across the FTSE 350, smaller listed and AIM companies, and large private companies, so the findings are relevant to the middle market.

Restatements and substantive queries have fallen, suggesting that reporting quality is improving. However, cash flow misstatements continue to account for the majority of errors.

Where should companies focus before the next reporting season?

1. Recheck cash flow classifications

Cash flow classification and reporting are recurring problem areas. Common errors include:

• Group loans and repayments classified as operating or financing rather than investing.
• Dividend payments classified as investing rather than financing or operating.
• Contingent consideration for a prior-year acquisition presented as operating.
• Non-cash transactions included in the cash flow statement.
• Inconsistencies between the cash flow statement and other disclosures.

These are longstanding issues. Many also appeared in the FRC's previous thematic review of cash flow statements.

Helpfully, the IASB plans to a publish an exposure draft on cash flow statements and related matters in 2027, which is expected to support with making cash flow classification more consistent.

Key takeaway - to improve the accuracy of cash flow reporting, businesses should recheck classifications, remove non-cash items and check for consistency with related disclosures.

2. Support impairment assessment with clear evidence

Not all companies explained how key assumptions were determined. For example, it wasn’t clear whether assumptions reflected past experience or external evidence, and why cash flow projections had been adjusted. Evidence supporting goodwill allocations to cash-generating units (CGUs) was limited or didn’t explain why the level of impairment testing had changed.

For businesses with online and store sales, the allocation of cash flows and costs to individual store CGUs was not always explained. We explored this issue in Bricks vs Clicks: is the way we assess store impairments fit for purpose? Another concern was parent company’s not considering whether investments in subsidiaries had lost value, despite recognising significant goodwill impairments in the consolidated accounts.

Key takeaway - assumptions, cash flows and goodwill allocations need to be explained and support your impairment conclusion. When setting out impairment assessments, make sure disclosures are consistent with the narrative, performance and risks elsewhere in the annual report.

3. Refine revenue policies and judgements

Companies did not always explain performance-based revenue arrangements, how they estimated variable consideration or whether they constrained variable consideration. Principal-versus-agent disclosures were sometimes missing or provide sufficient justification for their conclusion.

The FRC questioned companies where revenue streams in the strategic report were not clearly reflected in financial statement disclosures.

UK GAAP companies applying the new five-step revenue model for periods beginning on or after 1 January 2026 should prepare now.

Key takeaway - businesses should clearly explain how they account for each significant revenue stream and the judgements they make that affect recognition.

Quality corporate reporting begins with early preparation

Companies can strengthen year-end reporting and reduce the risk of the issues discussed by taking these steps:

• Use a robust review process to identify common and company-specific reporting issues
• Maintain effective oversight and control when using AI in corporate reporting
• Keep narrative reporting and the financial statements clear and consistent
• Make accounting policies company-specific, material and relevant
• Ensure the strategic report gives a fair, balanced and comprehensive review of performance and prospects
• Consider relevant findings from the FRC’s thematic reviews
• Get ready for forthcoming reporting changes.

Key takeaway - strong reviews, clear ownership and early preparation provide the best foundation for clear, consistent and high-quality reporting.

Support with year-end reporting

Addressing reporting issues early can make for a smoother year-end process and reduce the risk of late adjustments. Our UK GAAP and IFRS specialists can help you resolve complex accounting issues, strengthen disclosures and prepare annual reports that stand up to scrutiny. Speak to Andy Ka, Lou Ward or your usual RSM contact to discuss your year-end reporting.

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