UK’s Financial Reporting Council (FRC) has recently revised the ‘Guidance on the Strategic Report’ which encourages companies to consider wider stakeholders and broader matters that impact performance over the longer term.
The FRC believes that the integration of non-financial information into the strategic report is a key part of telling a company’s story. Thus, the 2018 Guidance has been enhanced to recognise the increasing importance of non-financial reporting.
The revised guidance also places a greater focus on the directors’ duty to promote the success of the company. This is complemented by new legislation that introduces a specific reporting requirement on how directors have had regard to broader matters when performing their duty, including considering the interests of employees, suppliers, customers and other stakeholders as well as impacts on the community and environment. The new legislation is applicable to large companies for financial years beginning on or after 1 January 2019.
In the revised guidance of the FRC, most of the amendments were made in Section 7 ‘The strategic report: content elements’, which makes it clear that the non-financial reporting Directive only relevant to Public Interest Entities (PIEs) with more than 500 employees.
Furthermore, FRC would like entities to put more emphasis on the importance of generation and preservation of company values which may be related and are not limited to company reputation, customers, environment and natural resources. It is expected that entities would be more creative and innovative when setting company’s values, thus helping stakeholders better understand company’s business model.
However, some people are worried that the emphasis on non-financial information may turn the strategic report into an ESG report, so entities should strike a balance between financial and non-financial data when preparing strategic reports.
FRC is an organization which sets Corporate Governance and Stewardship Codes in the United Kingdom, and helps to regulate actuaries, auditors and accountants in the financial industry.