Overview of the modernising corporate reporting consultation

It sounds like a simple question, but the government’s long-awaited consultation on Modernising Corporate Reporting suggests we might have lost sight of the answer.

Over the years, more and more requirements have found their way into annual reports, usually for perfectly sensible reasons. Taken together, though, they’ve created documents expected to do an extraordinary number of things for lots of different audiences. Reports have become longer, but not necessarily clearer and important information can get buried in disclosures that make sense on their own but don’t always add up to a coherent picture of the business.

Compliance has crowded out communication, so the government wants to go back to the beginning and ask what companies should report, who needs that information and what they’re expected to do with it. The starting point is that annual reports and accounts should give investors and creditors financially material information that helps them make decisions.

This isn’t just about trimming a few disclosures. The 70-page consultation puts almost every part of the corporate reporting framework up for discussion, from company-size thresholds and audit exemptions to dividend rules and digital communications. It’s been guided by five ambitions:

• Clarity of purpose
• Flexibility and trust
• Simplicity and cohesion
• Proportionality
• A framework fit for the future.

Depending on where the proposals land, they could change who reports, who needs an audit, what directors must explain and how boards decide if a company can pay a dividend.

There’s plenty here to feel happy about. Reporting should be proportionate and useful, and it should help someone understand the business rather than simply prove that a requirement has been met, but there’s tension running through the proposals too. Removing detailed rules doesn’t remove the need for judgement - in some areas, it increases it. A shorter rulebook may give companies more freedom, but it also puts more responsibility on directors to decide what matters, support those decisions and explain them clearly.

10 areas that could reshape corporate reporting

Some of the proposed reforms are highly technical, while others could change reporting in ways that will be visible to almost every business. They’re all connected by the same question - how do we ask companies for the information people need without continually adding more?

The government proposes that the annual report should focus primarily on financially material information for investors and creditors. That could help companies challenge disclosures that add pages without adding much value, but it raises a harder question about the legitimate interests of employees, customers, suppliers and wider society. If some information no longer belongs in the annual report, businesses will still need to decide where it should sit and how people will find it. This may be less about reporting less and more about being much clearer about what's reported where, and why.

Perhaps the most significant proposal is replacing the current framework with separate standards for micro, small and medium-sized, and large companies, alongside IFRS for listed companies. This could mean FRS 102 becoming the standard for large companies and a new standard being developed for SMEs. While a more proportionate framework may sound attractive, moving SMEs onto a new standard would be a major change, bringing significant conversion costs, systems work and disruption. The benefits would need to be clear enough to justify that burden.

The consultation asks whether company-size thresholds, exemptions and eligibility criteria could be simplified. For some businesses that could mean fewer requirements and less administrative work, although there’s an important difference between what a company is legally required to report and what its lenders, investors, customers or suppliers still need and expect to know. An exemption may remove an obligation, without removing the commercial need to share the information.

The options include allowing more medium-sized companies to use exemptions currently available to small companies and extending the small company audit exemption to some medium-sized businesses. The savings could be significant, particularly where the current burden feels out of step with the size or complexity of the company, but reporting and audit also give people confidence in the information they receive. The real test is whether cost can be reduced without losing something stakeholders rely on.

Some accounting requirements currently sit in both the Companies Act and UK Accounting Standards. Bringing reporting requirements together removes duplication and makes the framework easier to understand and update. It’s one of those rare proposals that everyone agrees is a good thing as all users of annual reports stand to benefit and no one appears likely to lose out. The only question is how government retains appropriate oversight without reintroducing the complexity this helpful shift is designed to remove.

The government is considering replacing the complex Companies Act rules on capital maintenance and distributable profits with a solvency-based regime, under which directors would consider whether a dividend or other distribution could affect the company’s ability to continue as a going concern. This sounds like it's more closely connected to the financial health of the business, but the apparent simplicity brings more judgement, not less. Boards would need clear expectations about the evidence, timeframe and assurance required before approving a payment.

Strategic reports should help readers understand how a business works, how it has performed and where it’s heading, but detailed requirements can encourage formulaic reporting that concentrates on whether every disclosure is present rather than if the overall story actually makes sense. A more principles-based model is proposed, which could give directors more freedom to explain their company clearly and cut boilerplate writing, but better reporting won’t appear automatically. Businesses will still need to make sound materiality judgements and connect financial and non-financial information into an account that holds together.

The consultation considers reporting some governance information once at group level, refining disclosures that aren’t working and potentially removing the annual shareholder vote on the directors’ remuneration report. Cutting repetition makes sense, particularly for groups with several reporting entities, as long as company-specific information doesn’t disappear into a broader group account. Simplification should make useful information easier to find, not simply move it somewhere less visible.

The proposals include making digital shareholder communication the default, supporting wider use of digital tagging, clarifying virtual annual general meetings and allowing some information to sit on websites or online portals. They also have to explore the role of AI. As well as improving how information is structured, searched and compared, it also raises questions about ownership, version control, historical records and assurance. Technology may change, but people still need to trust what they’re reading.

The Department for Business, Innovation, Science and Trade has introduced a Reporting Gateway to test whether future requirements are needed, proportionate and consistent with the wider framework. It may be less eye-catching than the other proposals, but it matters. Today’s clutter wasn’t created by one decision, it built up gradually as individually reasonable requirements accumulated. If this reset is going to last, someone needs to keep the whole picture in view.

What could the consultation mean for you?

The impact won’t stop with the people who write the annual report. Changes to company categories and audit exemptions could alter which rules apply to a business. A new approach to distributable profits could change the evidence boards need before approving dividends, while more principles-based strategic reporting would require clearer judgements about what matters and what readers genuinely need to know.

Digital reporting could affect systems, data, controls and assurance, as well as the way finance, governance, legal, investor relations and sustainability teams work together. For some businesses, the reforms could remove work that takes considerable time but offers limited value. They could also create annual reports that feel like an explanation of the business rather than a collection of disclosures assembled to meet a deadline.

Fewer rules don’t necessarily mean easier decisions. Greater flexibility can create uncertainty, which is why this consultation matters now, not once the government has made its final decisions and the chance to influence them has passed.

What should you do now?

Start by looking honestly at your current reporting. Which disclosures help someone understand the business or make a decision about it and which are there mainly because they’ve always been there? Where does useful information get buried and if a requirement disappeared tomorrow, would anyone outside the reporting team notice?

You should also consider how changes to company categories, audit exemptions or dividend rules could affect you; if a more principles-based regime would improve your reporting or create new uncertainty and what information belongs in your annual report rather than on a website, portal or somewhere else. If reporting becomes more data-led, are your systems, information, controls and governance ready for it?

We know these conversations shouldn’t sit with the financial reporting team alone. Boards, audit committees, finance teams, company secretaries, legal advisers, investor relations, sustainability specialists and those responsible for reporting technology will each see different opportunities and risks. Bringing those views together will create a stronger response and a framework that reflects how reporting works in practice, not just how it looks on paper.

This is a rare opportunity to influence UK corporate reporting for years to come. The aim shouldn’t simply be fewer pages or fewer requirements. It should be reporting that earns the time it takes to produce and the attention it asks from the reader.

The consultation closes at 11.59pm on 30 November 2026. Make your voice heard. Respond to the Modernising Corporate Reporting consultation.

The consultation could have significant implications for your reporting and governance arrangements. Contact Danielle Stewart, Lou Ward or your usual RSM adviser to discuss the potential impact on your organisation.

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